The season of bad loan sales has begun. Banks are putting their non-performing assets (NPAs) on the block to clean up their books and book profit from it. Five state-owned banks together have already put Rs 6,700 crore of NPAs on the block for companies in the business of accumulating distressed assets —called asset reconstruction companies (ARCs) — to buy.
It is expected that many more bad loans would be up for sale. The assets are generally bought by ARCs at a discount. Selling the bad loans helps banks clean up their balance sheets. Since these NPAs are fully provided for, the money from the sale goes directly into banks' profit and loss accounts.
SBI is showcasing about Rs 2,700 crore of bad loans to ARCs. However, it has not sold any as the process has just been initiated. Bank of India and Allahabad Bank have already sold loans worth Rs 1,102 crore. Others like Uco Bank, PNB, Bank of Baroda and Union Bank have identified about Rs 2,000 crore of loans to be sold.
Soundara Kumar, deputy MD of SBI, said the majority of his bank's NPAs are SME loans and small corporate loans.
Last financial year, SBI did not put up any loan for sale. "This year we have initiated the process and will take a call, depending on the bids we receive," he said.
Usually, loan sales happen in the third and fourth quarters. But this time they have begun in the second quarter itself; this is so that banks do not have to offer steep discounts to ARCs.
Shubhalakshmi Panse, CMD of Allahabad Bank, said, "We have sold Rs 732 crore loans of large and mid-corporate companies. We have received Rs 350 crore and the remaining will be paid in the form of security receipts. ARCs will have to make the payments on these receipts in six years." The bank gave a 50 per cent discount on its loans. Allahabad Bank has identified another Rs 500 worth of loans to be sold in third quarter.
Vijayalakshmi Iyer, CMD of Bank of India, said, "We sold Rs 370 crore of bad assets and made a profit of Rs 8 crore." Another Rs 500 crore worth of bad loans would be shed if the price is good and discounts are reasonable.
P Rudran, CEO and MD of Asset Reconstruction Company (India) said, "We have acquired some loan assets from banks. We are careful in selecting accounts with good underlying assets so that it is easy for us to get back the loans. This time, we have acquired SME loans and mid-corporate loans."
manjuab@mydigitalfc.com
