Indian banks are sitting on gross NPAs of nearly 8 percent.
Indian banks have identified 22 loan accounts worth a total outstanding of Rs 89,000 crore to shift to the proposed National Asset Reconstruction Company (NARCL), according to Rajkiran Rai, chairman of the industry lobby Indian Banks’ Association (IBA). Rai is also the chief of state-run Union Bank of India.
The establishment of the NARCL was announced in the Union Budget for 2021-22 for aggregating the chunky bad assets in the banking system that still remain unresolved. It is expected to be largely funded by public sector banks and it may begin functioning in July 2021.
These numbers indicate only the accounts where lead banks have been able to hold discussions with other consortium banks, Rai said in a press conference with reporters on Monday. Asked about the terms of transfer, Rai explained that what NARCL eventually buys will depend on its own appetite.
“What we have done is preliminary work to keep the ground ready so that when the ARC is registered, they can start the process. We have broadly identified accounts where there are close to 100 percent provision and which are accounts above Rs 500 crore,” Rai said, adding that for these accounts, lead banks have been asked to call for meetings with other consortium members and keep approvals ready.
Eventually, about Rs two lakh crore worth of bad assets could be transferred to the NARCL in stages.
Union Bank itself expects to transfer 17 accounts with an exposure of Rs 7,800 crore, of which it is a lead bank in two. Only a handful of banks have so far disclosed the quantum of assets they intend to transfer to the NARCL. On Saturday, Punjab National Bank said it would transfer Rs 8,000 crore worth of assets. Earlier, Bank of India said it had identified 21 accounts with an exposure of Rs 5,500 crore and Indian Bank estimated a transfer of accounts worth Rs 1,900 crore.
Two bankers that Moneycontrol spoke to said that there is little clarity on the terms of sale as the process is being handled largely by the IBA. “The identification of accounts and finalisation, etc. is all happening at the core committee level of the IBA. So we are not too sure about the accounts or the terms of transfer yet,” said a senior official at a mid-sized private bank.
An official from the ARC industry said that the transfers would be made either at book value or 10 percent of the value of the asset. “But if the asset is fully provided for, then anyway book value has no meaning. So most probably transfers will happen at 10 percent,” he said on condition of anonymity.
Banks have maintained for a while that the prime goal behind the NARCL was the aggregation of assets for more effective recovery. “So we as of now would not have any clear idea in terms of what the parameters would be, but to my mind, the guiding principles probably would be that these are larger accounts which are shared across banks for the primary benefit of the NARCL is aggregation and after getting aggregated to achieve quicker results,” Sanjiv Chadha, MD & CEO, Bank of Baroda (BoB), told analysts after the bank’s Q4 results.
Without sharing a number for assets BoB plans to transfer, Chadha added that these are likely to be accounts which have very high levels of provision. “My own sense again is that in terms of for us, possibly the impact may be within 5% to 10% of our non-performing book, probably not more than that,” Chadha said.