SBI to Sell Rs 5,000 Crore NPAs to ARCs Shortly

By ENS Economic Bureau - MUMBAI: 18th March 2014

The country’s largest bank, the State Bank of India became the latest to join the bandwagon of banks hawking distressed assets in a bid to strengthen their balance sheets and dispose of non-performing loans from their books.

According to reports quoting a senior SBI official, the bank will put Rs 5,000 crore out of nearly 70,000 crore of distressed loans up for auction before March 31. This follows other banks like United Bank of India which have also decided to rid themselves of non-performing loans after reporting gross non performing assets (NPA)  equalling 10.82% of advances and a loss of Rs 1,238.08 crore for the December 2013 quarter. When contacted, a State Bank of India spokesperson refused to confirm or deny whether they were putting Rs 5,000 crore of assets on the block in this quarter.

The urgency to dispose of these assets comes as the Reserve Bank of India’s (RBI) new guidelines on provisioning for non-performing loans come into effect from April 1, 2014. According to the new guidelines introduced by the RBI last month and notified last week, banks are incentivised to recognise and dispose of NPAs early.

Non banking finance companies (NBFCs) and private equity are permitted to participate in the auction process. Rating firm ICRA noted that, “the RBI framework is expected to strengthen banks’ monitoring process and joint efforts for resolution and recovery. It could have a positive impact on their asset quality over the medium to long term.”

ICRA, which is partly owned by Moody’s Investor Services, said in a report recently that the banking sector will continue to be under stress on account of bad loans.

“Overall, gross non-performing assets (Gross NPAs) for public plus private banks increased from 4.0% as on September 30, 2013 to 4.1% as on December 31, 2013. The deterioration was primarily because of the slippages posted by the public sector banks, for whom the gross NPA percentage increased from 4.5% as in September 2013 to 4.7% as in December 2013,” ICRA noted.

More and more banks are joining the queue to unload non-performing loans. It was reported last week that United Bank plans to dispose of around Rs 700 crore in NPAs to asset reconstruction companies. Chennai-based Indian Bank also invited bids for “18 individual NPAs” through newspaper advertisements recently.