At least four large public sector banks have put up nearly Rs 7,500 crore worth of non-performing assets (NPAs) on sale to asset reconstruction companies (ARCs) and other financial institutions.
Lenders State Bank of India (SBI), Bank of Baroda, Dena Bank and Andhra Bank have decided to sell a large part of their NPA exposures to accounts which are undergoing resolutions at various insolvency courts.
“We expect to recover a large part of these assets on a cash basis. This also helps us avoid delays in resolution due to the excessive litigation,” said the head of a large public sector bank.
On November 20, Bank of Baroda listed 35 bad loan accounts worth Rs 4,237 crore for sale on its website. These include: Jindal India Thermal Power (Rs 334.93 crore), Rathi Steel & Power (Rs 290.52 crore) and Rolta India (Rs 287.38 crore).
“The interested ARCs/ banks/ NBFCs/FIs can conduct due diligence of these assets with immediate effect after submitting expression of interest and executing a non-disclosure agreement with the Bank,” BoB said on its website.
Similarly, state-owned Andhra Bank has invited bids for the proposed sale of its NPAs comprising 53 accounts, with a principal balance of Rs 1,552.96 crore on a cash basis only. The e-bidding will take place on December 3. The bank will execute the assignment agreements and fund transfer on or before December 10.
Dena Bank proposed sale of 84 NPAs totalling Rs 3,324 crore, through an e-bidding process on November 29.
The country’s largest lender SBI had also put up 11 bad loan accounts for sale to ARCs and financial companies to recover dues worth nearly Rs 1,019 crore.
Price still pinches“Banks are putting up many distressed assets on sale, but pricing continues to be an issue. However, with more cash deals and push for a clean-up from the regulator has helped us garner a better price. They (banks) also want to avoid the NCLT (National Company Law Tribunal) after the Reserve Bank of India’s (RBI) February 12 circular. Hence, they are putting up more assets on sale,” said a chief of a large ARC.
The circular mandates all lenders to push all borrower accounts for resolution under the Insolvency & Bankruptcy Code (IBC) if a successful recovery has not been made within 180 days of the loan turning into an NPA.
Banks and ARCs have been negotiating hard over the past several years. Given the rush to recover loans and increasing supply of bad loans, banks are willing to take more hair-cuts or losses on its loans than before for immediate cash recovery.
Asset Reconstruction Company (India), or Arcil, one of the country's largest ARCs, plans to buy about Rs 5,400 crore worth of stressed assets from banks. For this, it plans to raise additional Rs 1,500 crore in the next six months.
In FY18, Arcil acquired about Rs 2,700 crore worth of assets, while the same for the industry stood at over Rs 20,000 crore, said Pramod Gupta, Arcil’s Chief Financial Officer (CFO).
With a clear focus on retail and mid-sized distressed assets, Arcil's CEO and Managing Director Vinayak Bahuguna said his firm is selectively looking at some of the industrial assets too. “In the mid-sized segment, we are looking at companies with debt up to Rs 5,000 crore. We are looking at steel, textile and road projects and some select stressed power projects.”
In Q2, Bank of India had put up a total of Rs 10,000 crore worth of NPAs on sale through auction. The bank’s CEO and MD Dinabandhu Mohapatra said the management is negotiating resolutions for power assets worth Rs 3,000 crore.
Till March, cumulative estimates suggest that about one-third of the bad loans of banks have been purchased by ARCs.
As on September, banks are sitting on a huge pile of NPAs worth over Rs 10.50 lakh crore on its balance sheets, creating an opportunity for ARCs and domestic and foreign investors.
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