As public sector banks (PSBs) struggle to clean up their loan portfolios, asset reconstruction companies (ARCs) have been the usual choice to dispose of such assets.
Public sector lenders, such as Indian Overseas Bank, United Bank of India, Bank of Maharashtra, Bank of Baroda and Syndicate Bank, have announced sale of assets worth R5,763 crore to asset reconstruction companies. The troubled United Bank has said it will reduce its NPAs by selling assets worth R700 crore to ARCs.
According to RBI, gross NPAs of public sector banks stood at R1.64 lakh crore as on March 31, 2013, whereas those of private sector peers were R20,762 crore. The gross NPA ratio at the aggregate level was 3.6% at end-March 2013, up from 3.1% a year ago.
?This increased activity is a result of the new RBI guidelines on early detection of stressed assets. Banks now believe selling NPAs to ARCs hastens the recovery process,? said Indian Overseas Bank chairman and managing director M Narendra.
In February, Oriental Bank of Commerce had sought an expression of interest (EoI) from ARCs for the proposed sale of its non-performing assets (NPAs), comprising about 77 accounts worth R1,685.03 crore. India?s first ARC, Asset Reconstruction Company (India) (Arcil), said it has seen a spurt in such bad asset sales.
P Rudran, MD & CEO, Arcil, told FE, ?Banks have been more active in disposing of bad assets and have ramped up measures for recoveries. This fiscal (till February), the quantum of assets put on sale by banks is 67% more than that in last financial year.?
According to Rudran, this year has seen R20,000 crore worth of assets being put on sale, compared to R12,000 crore in the previous fiscal (FY13).
In a document released on January 30, 2014, RBI said that ARCs should be construed as a supportive system for stressed asset management with greater emphasis on asset reconstruction rather than asset stripping.
?At present, banks cannot sell standard assets to ARCs. In order to ensure better chances of reconstruction of stressed assets, henceforth banks will be permitted to sell assets reported as SMA-2 (loans overdue from 61-90 days) to ARCs,? RBI said in its guidelines.
The RBI added that the ability of the ARCs to raise limited debt funds to rehabilitate units will be considered.
