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State Bank of India puts two corporate bad loan accounts worth Rs 410 crore on sale

The two accounts are Kamachi Industries and Tantia Agrochemicals. The bank’s exposure to Kamachi Industries stands at Rs 355.93 crore and that to Tantia at Rs 53.52 crore.

May 31, 2021 / 03:11 PM IST
A loan account becomes NPA if there is no repayment of interest or principal for a period of 90 days. For such accounts, banks need to set aside additional funds as provisions.

A loan account becomes NPA if there is no repayment of interest or principal for a period of 90 days. For such accounts, banks need to set aside additional funds as provisions.

State Bank of India (SBI), the country’s largest lender, has put up two corporate non-performing assets (NPAs) worth Rs 409.45 crore for sale to asset reconstruction companies (ARCs) as part of its ongoing efforts to make recoveries from accounts that have gone bad, according to a notification on the bank's website.

SBI has sought buyers for Kamachi Industries and Tantia Agrochemicals. The bank’s exposure to Kamachi Industries stands at Rs 355.93 crore and that to Tantia at Rs 53.52 crore. SBI has set a reserve price of Rs 150 crore for Kamachi, implying a recovery of roughly 42 percent of the outstanding amount. ARCs will have the option of paying 42 percent of the sale amount as upfront cash and issuing security receipts (SRs) towards the remaining 58 percent. The account is backed by a corporate guarantee and the net worth of the guarantors was Rs 118.57 crore, as on March 31, 2018, according to the notification.

The other asset on sale, Tantia Agrochemicals, is being offered on a full-cash basis. SBI’s exposure in the account is Rs 53.52 crore and the reserve price has been set at Rs 13 crore, which implies a recovery of a little over 24 percent.

ARCs are companies which buy stressed assets from originating lenders at a discount and attempts to recover the money either by helping in resolution or by sale. Banks sell bad assets to ARCs in a bid to recover maximum value possible. In the absence of a buyer and resolution, banks run the risk of losing the entire money.

A loan account becomes NPA if there is no repayment of interest or principal for a period of 90 days. For such accounts, banks need to set aside additional funds as provisions.

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Instances of banks offering NPAs on a hybrid basis, that is, involving a combination of cash and SRs, have become rare of late. The reason for this is that lenders are keen to recover whatever they can upfront rather than holding on to SRs that can be redeemed only seven or eight years later. A hybrid deal is acceptable in the case of Kamachi Industries because the account has already been fully provided for, the notification mentioned. When an account is fully provided for, the bank holds provisions equivalent to the value of the exposure in that account. Any recovery from the sale of the account then results in a write back of associated provisions.

So far in the first quarter of Financial Year 2022, SBI has put NPAs worth Rs 1,200 crore on sale, including those in the latest tranche. In a post-results conference call with analysts, the SBI management said there are hardly any chunky bad loans left within the bank.

“As far as recovery is concerned, more or less, the numbers would remain in line with what we had achieved last time. But the only difference will be that in the last couple of years, there were certain chunky accounts which got resolved,” said SBI Managing director Swaminathan J.

“Today, the recoveries for this year and going forward will have to happen across many accounts. So, we are working on those granular details.” In FY21, SBI made recoveries and upgrades worth Rs 17,632 crore.

Swaminathan added that the pace and extent of recovery will depend on how soon the second wave of Covid settles down, so that the bank’s recovery efforts can get intensified. He declined to share an estimated figure for recoveries during FY22 and said that SBI will be better placed to offer a forecast during the Q1FY22 results call.

Banks are eagerly waiting for the establishment of the proposed National ARC (NARC) or the so-called ‘Bad Bank’ later this year, which will buy bad assets from banks helping lenders to clean up their balance sheets.

According to bankers in the know, the Indian Banks’ Association has firmed up a list of over 40 assets which could be transferred to NARC. However, an official announcement on the details of these accounts is still awaited.



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Shritama Bose
first published: May 31, 2021 03:11 pm
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