Gross NPAs of listed banks have risen consistently in the last two years as the economy has grown at its slowest pace in more than a decade. Photo: Priyanka Parashar/Mint
Live mint :Mumbai:jJoel Rebello:28 Feb 14
Asset reconstruction companies (ARCs), or aggregators of
non-performing assets (NPAs) of banks, have seen a large jump in supply
of such assets this fiscal as lenders scramble to clean up their books.
Asset reconstruction companies (ARCs), or aggregators of
non-performing assets (NPAs) of banks, have seen a large jump in supply
of such assets this fiscal as lenders scramble to clean up their books.
Asset Reconstruction Co. (India) Ltd (Arcil), the largest aggregator of
such loans in India, estimates that Rs.20,000 crore in bad loans has
been put up for sale so far this fiscal, much higher than the
Rs.12,000 crore seen in 2012-13.
such loans in India, estimates that Rs.20,000 crore in bad loans has
been put up for sale so far this fiscal, much higher than the
Rs.12,000 crore seen in 2012-13.
Of this, Rs.6,000 crore to Rs.7,000 crore in bad loans has
already been purchased by ARCs so far this fiscal, up from
around Rs.2,000 crore last year, according toP. Rudran,
managing director and chief executive, Arcil.
already been purchased by ARCs so far this fiscal, up from
around Rs.2,000 crore last year, according toP. Rudran,
managing director and chief executive, Arcil.
“Just like people choose to give away their old clothes when
their closets are full, this year there has been a sharp increase in NPAs
for sale to ARCs, because banks are eager to sell these assets noting
the quick rate at which they are growing,” Rudran said.
their closets are full, this year there has been a sharp increase in NPAs
for sale to ARCs, because banks are eager to sell these assets noting
the quick rate at which they are growing,” Rudran said.
Gross NPAs of listed banks have risen consistently in the last two
years as the economy has grown at its slowest pace in more than a
decade. FromRs.1.32 trillion at the end of the March 2012 quarter,
such loans swelled to Rs.1.79 trillion by December 2012, and to
Rs.2.43 trillion at the end of the December 2013 quarter.
years as the economy has grown at its slowest pace in more than a
decade. FromRs.1.32 trillion at the end of the March 2012 quarter,
such loans swelled to Rs.1.79 trillion by December 2012, and to
Rs.2.43 trillion at the end of the December 2013 quarter.
To be sure, bank NPAs have been on the rise for the last many
quarters, especially across public sector banks. However, attention
to the issue was magnified after Kolkata-based United Bank of India
reported gross NPA equalling 10.82% of advances for the December
2013 quarter. The bank reported a record Rs.1,238.08 crore loss
in the December quarter.
quarters, especially across public sector banks. However, attention
to the issue was magnified after Kolkata-based United Bank of India
reported gross NPA equalling 10.82% of advances for the December
2013 quarter. The bank reported a record Rs.1,238.08 crore loss
in the December quarter.
As bad loans surged and capital adequacy at the bank hit the
minimum required level of 9%, United Bank was forced to stop
giving fresh loans.
minimum required level of 9%, United Bank was forced to stop
giving fresh loans.
On Wednesday, news agencies reported that the lender also
plans to sell more than Rs.700 crore in NPAs to asset
reconstruction companies.
plans to sell more than Rs.700 crore in NPAs to asset
reconstruction companies.
Just like United Bank, Chennai-based Indian Bank in a newspaper
advertisement on Wednesday sought bids for “18 individual NPAs”
without giving out the total quantum of loans being sold.
advertisement on Wednesday sought bids for “18 individual NPAs”
without giving out the total quantum of loans being sold.
Top lenders like State Bank of India (SBI), Canara Bank, Bank
of Barodaand Union Bank of India are also looking to get rid of
their sticky assets, confirmed a senior official at an asset reconstruction
company, who did not want to be named.
of Barodaand Union Bank of India are also looking to get rid of
their sticky assets, confirmed a senior official at an asset reconstruction
company, who did not want to be named.
V.P. Shetty, executive chairman at JM Financial Asset Reconstruction
Co. Pvt. Ltd, said that this year the amount of NPAs for sale has been
the highest since his company’s inception.
Co. Pvt. Ltd, said that this year the amount of NPAs for sale has been
the highest since his company’s inception.
“We started out operations at the fag end of 2008-09 and in our
five-year cycle this year the loans in the market are at the highest,”
said Shetty.
five-year cycle this year the loans in the market are at the highest,”
said Shetty.
ARCs expect banks to offload more NPAs in the immediate future,
following new guidelines introduced by the Reserve Bank of India
(RBI) last month, which incentivized banks to recognize and dispose
of NPAs early. The guidelines were notified on Wednesday
and will come into effect from 1 April.
following new guidelines introduced by the Reserve Bank of India
(RBI) last month, which incentivized banks to recognize and dispose
of NPAs early. The guidelines were notified on Wednesday
and will come into effect from 1 April.
“Banks can now sell even standard accounts in SMA 2 category to
ARCs,” Rudran said. SMA 2 category loans are those that are
overdue for 61 to 90 days and are on the verge of being classified as NPAs.
ARCs,” Rudran said. SMA 2 category loans are those that are
overdue for 61 to 90 days and are on the verge of being classified as NPAs.
Generally, banks only consider selling loans that have already been
classified as NPAs. Loans more than 90 days overdue are classified as NPAs.
classified as NPAs. Loans more than 90 days overdue are classified as NPAs.
“This is basically a preventive measure. One notable outcome of the
recent change in guidelines is that ARCs are recognized for
reconstruction of NPAs, and hence younger NPAs are coming
in the market for sale to ARCs. Going forward, I feel, this will
greatly help in NPA resolution,” Rudran said.
recent change in guidelines is that ARCs are recognized for
reconstruction of NPAs, and hence younger NPAs are coming
in the market for sale to ARCs. Going forward, I feel, this will
greatly help in NPA resolution,” Rudran said.
Besides, in the case of cash sales, the guidelines have for the
first time allowed banks to directly book the profit or sale of a
bad asset to an ARC in the profit or loss account and not a
separate account.
first time allowed banks to directly book the profit or sale of a
bad asset to an ARC in the profit or loss account and not a
separate account.
However, a majority of NPA sales by banks to ARCs are not
in exchange for cash, but in return for so-called security receipts
(SRs), which are issued to banks pending recovery from an
account. These SRs are then encashed after the loan is recovered.
in exchange for cash, but in return for so-called security receipts
(SRs), which are issued to banks pending recovery from an
account. These SRs are then encashed after the loan is recovered.
In the recent guidelines, RBI has also permitted leveraged buyouts
of stressed companies, by specialized entities such as private
equity or venture funds, which buy out stressed assets only to
re-sell them post restructuring.
of stressed companies, by specialized entities such as private
equity or venture funds, which buy out stressed assets only to
re-sell them post restructuring.
“Appropriate incentive structures may be built so as to provide
greater role to PE (private equity) firms and other institutions in
restructuring of troubled-company accounts. These institutions
can be expected not only to bring additional funds for restructuring,
but also bring in expertise for management of the business unit in
question,” RBI said in a statement on 30 January.
greater role to PE (private equity) firms and other institutions in
restructuring of troubled-company accounts. These institutions
can be expected not only to bring additional funds for restructuring,
but also bring in expertise for management of the business unit in
question,” RBI said in a statement on 30 January.
Currently, ARCs mostly buy NPAs of small- and medium-sized
companies as buying larger loans require a significant amount
of funds, technical skills and expertise. The recovery of large
industrial accounts can also be a long-drawn and complex affair.
companies as buying larger loans require a significant amount
of funds, technical skills and expertise. The recovery of large
industrial accounts can also be a long-drawn and complex affair.
Shetty from JM Financial said most of the loans up for grabs in the
market, are loans outstanding with medium-sized companies,
which have failed to restructure their debt via the corporate debt
restructuring (CDR) process.
market, are loans outstanding with medium-sized companies,
which have failed to restructure their debt via the corporate debt
restructuring (CDR) process.
“These loans have an average exposure of Rs.250 crore to
Rs.500 crore. Both public sector as well as private sector banks
are coming to sell as banks want to clear their books and want
to give it to specialists companies which do just this job,” Shetty
said.
Rs.500 crore. Both public sector as well as private sector banks
are coming to sell as banks want to clear their books and want
to give it to specialists companies which do just this job,” Shetty
said.
The actual recovery of bad loans, however, continues to remain a
challenge for ARCs, even as banks have shed their reluctance to
part with their loans.
challenge for ARCs, even as banks have shed their reluctance to
part with their loans.
“Due to the economic slowdown, the recovery continues to be
unsatisfactory. But banks have now realized that ARCs are their
partners and it makes a lot of business sense to work with us.
There is an enhanced understanding of the business and there
is a lot of improvement in flow of information. We expect more
loans to come in the market,” Rudran said.
unsatisfactory. But banks have now realized that ARCs are their
partners and it makes a lot of business sense to work with us.
There is an enhanced understanding of the business and there
is a lot of improvement in flow of information. We expect more
loans to come in the market,” Rudran said.
Posts
No comments:
Post a Comment