Banks look to sell NPAs to ARCs to recover dues, repair balance sheets
Mumbai: Several banks have put up bad loans for sale to asset reconstruction companies (ARC) in a bid to recover dues and repair stressed balance sheets, as non-performing assets (NPA) resolution through insolvency proceedings is yet to gather pace.
Punjab National Bank (PNB), United Bank of India, Indian Overseas Bank (IOB) and Dena Bank have put up for sale NPAs with outstanding dues of over Rs2,660 crore. These lenders have floated tenders inviting bids from ARCs and other financial institutions, information available on their websites showed.
According to Eshwar Karra, chief executive of Phoenix ARC Pvt. Ltd, more banks are likely to follow suit and come with similar sales as lenders are using all the available tools to ensure the asset resolution momentum continues.
Most assets coming up for sale are those that have remained non-performing for a long time and are fully provisioned. However, banks are also open to selling comparatively new accounts if they expect to get a good price, Karra said.
Most NPA sales to ARCs are sealed under the 15:85 rule, under which ARCs give 15% of the net asset value as upfront cash and issue security receipts to cover the rest.
However, in cases where the underlying value of the account is higher and backed by physical assets, banks are also keen on striking all-cash deals, industry watchers said.
Indian banks are sitting on a stressed asset pile of close to Rs10 trillion; of this, gross bad loans account for Rs7.7 trillion and the rest are restructured loans. Bankers say resolution of large ticket corporate loans has gathered pace after the referral of 12 accounts to the National Company Law Tribunal (NCLT) for insolvency proceedings, following a Reserve Bank of India directive.
Separately, banks are also in the middle of discussing a corrective action plan for other accounts in the list of top 500 exposures, and implementing it within the six-month time frame set by the central bank.
In case there is no viable resolution agreed upon by majority lenders, these accounts will be taken to NCLT.
“We are putting in place infrastructure, such as empanelling resolution professionals and other risk manager expertise in place before filing for more cases at NCLT. But alongside, the focus on recoveries remains a top priority. And hence many small sized accounts that have remained NPAs at least for four years are being cleared for ARC sale,” said a senior official of Indian Overseas Bank, who did not want to be named.
Apart from purely buying bad loans, the role of ARCs in asset resolution, especially through bankruptcy proceedings, has assumed great significance. Finance minister Arun Jailtey said on 29 July that regulatory changes made in the past few months are supportive for ARCs and also for sale of stressed assets to private equity and special situation funds. New ARCs have sought registration approval to set up operations, he said.
As of the end of March, India had 23 ARCs certified by RBI.