Union Bank to sell bad loans worth over ₹1,200 crore ahead of merger

Public sector lender Union Bank of India said it is looking to sell bad loans of over ₹1,200 crore to asset reconstruction companies (ARCs), banks, non-banks and other financial institutions.

In a notice on its website, the bank said it has sought bids for selling a bundle of 11 non-performing assets, totaling ₹1,280.87 crore, by 13 January. An e-auction will be conducted the following day.

The bad assets include loans to GVK Power Goindwal Sahib Ltd ( ₹443.84 crore), Chennai Elevated Tollways Ltd ( ₹192.24 crore), Rajahmundry Godavari Bridge Ltd ( ₹153.03 crore), Sona Alloys Pvt Ltd ( ₹135.58 crore) and Supreme Manor Wada Bhiwandi Tollways Ltd ( ₹113.95 crore). The assets, Union Bank said, will be sold in exchange of cash.

The bank classified these loans as NPAs between December 2012 and November 2017. The earliest one was to Pacific Hospitals Pvt. Ltd ( ₹5.87 crore), while the GVK Power Goindwal Sahib Ltd (GVKPGSL) loan, which turned bad in November 2017, was the latest addition.

“If the bid amount quoted looks like cartelization, re-tendering should happen and, if the bid amount quoted by one ARC is more than 50-60% of the other bids, such a bid should be subjected to more scrutiny,” said the bank’s document.

The assets form about 2.5% of its NPAs, which were at ₹49,850 crore as on 30 September 2019. The bank’s gross NPA ratio, or bad loans as a percentage of total advances, stood at 15.24% in Q2 FY20, down 50 basis points (bps) from the corresponding period of last year.

GVKPGSL is a step-down subsidiary of GVK Power and Infrastructure Ltd (GVKPIL), the holding company. According to GVKPIL’s FY19 annual report, the subsidiary was unable to run the plant at optimal capacity during 2017-18 and 2018-19, primarily on account of low availability of fuel and, hence, defaulted on the repayment of dues to lenders.

“Consequently, the lenders had classified the loan balances of GVKPGSL as non-performing assets,” it said in the annual report, adding that the company has shown substantial improvement in cash flow in 2018-19 and declared plant availability at 66.22% of its capacity.

Union Bank is looking to clean up its balance sheet before the merger with Andhra Bank and Corporation Bank. The merger, announced by finance minister Nirmala Sitharaman in August 2019, will create India’s fifth-largest public sector bank with ₹14.59 trillion in business.

Allahabad Bank too will sell bad loans worth ₹922 crore before its merger with Indian Bank Ltd, Mint reported on 4 December. It has identified 50 loan accounts for sale only in exchange of cash and not security receipts, as is the prevalent norm. Among the list of 50 accounts in Allahabad Bank are 34 loans of ₹1 crore and above. The highest is that of Rohit Ferro-Tech Ltd at ₹164.15 crore.

On 6 December, the Reserve Bank of India (RBI) had barred ARCs from acquiring financial assets from a bank or financial institution, which is its sponsor, its lender or a subscriber to its fund. For instance, Asset Reconstruction Company (India) Ltd where State Bank of India, IDBI Bank and Punjab National Bank are key shareholders, will be unable to bilaterally buy assets from these banks.

However, the RBI allowed them to participate in auctions of the financial assets, provided the auctions are conducted in a transparent manner, on an arm’s-length basis, and the prices are determined by market forces.