Lender to sell corporate, SME, housing NPAs to ARCs, financial institutions
The biggest chunk of such bad loans, 155, have been listed from SBI’s New Delhi stressed asset branch
Mumbai: State Bank of India (SBI) has decided to sell 487 bad loans worth over ₹1,000 crore in corporate, small and medium enterprise (SME) and housing segments to asset reconstruction companies (ARCs), other banks and financial institutions, said a bank notice seeking bids.
Among the large accounts listed by SBI are Sravanthi Energy Pvt. Ltd (exposure of ₹177 crore), Burnpur Cement Ltd ( ₹133 crore) and Rana Iron and Power Ltd ( ₹97 crore). The bank said it has existing offers for these three accounts, and that those bidders will have the right to match the highest bid under the Swiss Challenge method, where an initial bidder gets a chance to match later bids. Other accounts up for sale include VS Lignite Power Pvt. Ltd, part of KSK Energy Ventures Ltd, with SBI’s exposure at ₹98 crore.
Interestingly, the bank has also put on sale 480 housing and SME loans from its stressed asset resolution branches across the country. The biggest chunk of such bad loans, 155, have been listed from SBI’s New Delhi stressed asset branch, followed by 106 accounts from its branch in Titagarh, West Bengal.
An SBI official who did not wish to be named said most of these loans are backed by some form of security and are being offered at a discount to potential bidders. “The bank will put on sale some more such assets in the coming months as it looks to recover from defaulters," the SBI official said.
All these loans will be sold on a full-cash basis and not under the regular practice of 15% in cash and the rest in security receipts which are redeemable as and when the ARC recovers from the borrower. The assets are mostly sold at a deep discount to the total outstanding and the ARC charges 1.5-2% of the assets as management fee every year.
Meanwhile, not all banks have been selling loans to ARCs owing to differences in pricing and delays in recovery. The major bone of contention between a bank and an ARC has been the reserve price, the lowest price for a bid. While ARCs argue that banks seek high reserve price, bankers decline to take steep discounts resulting in a stalemate in many cases. In FY18, all ARCs put together purchased bad loans of close to ₹20,000 crore, Vinayak Bahuguna, managing director and chief executive officer, Arcil told reporters last year.
Ashutosh Mishra, senior research analyst at Reliance Securities said an ARC is also able to affect faster recovery when it has bought a majority of the loans from lenders. “This gives the ARC a major say in the resolution process and quickens recovery of bad debt," said Mishra.
Earlier this month, SBI posted a net profit of ₹3,954.81 crore, its highest in seven years, owing to improved asset quality and strong net interest income (NII) growth. The bank’s gross non-performing assets (NPAs), as a proportion of total advances, fell to 8.71% in the December quarter from 9.95% in the previous quarter and 10.35% in the year-ago December quarter.
“The slippages are under control. We are working in the direction in bringing down the net NPAs and we should be below 3% by the end of March 2019," SBI chairman Rajnish Kumar had said after announcing the bank’s December quarter results.
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