Banks are willing to offload their stressed assets to asset reconstruction companies (ARCs) at discounts of about 30-40% of the outstanding amount, say bankers and officials from ARCs.
Bankers say at these levels of discount, it is viable to make the sale of distressed assets as it offsets the provisioning and legal expenses that banks have to otherwise incur to maintain these accounts in their books.
After seeing negligible auctions of stressed assets in 2011-12 and for the most part of this financial year, the last two months have seen banks announcing a slew of auctions.
According to sources, IDBI Bank (R900 crore), Allahabad Bank (R126 crore), Federal Bank (R194 crore), Central Bank (R300 crore), UCO Bank (R25 crore) and Corporation Bank (R17 crore) have send out tenders to ARCs for auctioning these assets. Some banks like Bank of India, ICICI Bank and Bank of Baroda have also bilaterally sold assets to a few ARCs. Most of the NPAs that are considered for sale are mid-corporate accounts.
“We would be comfortable selling stressed assets at a 30-40% discount. However, we would expect lower levels of discounts in cases where the account is backed by strong security,? said a Corporation Bank official.
Another public sector banker said that banks typically prefer selling loss assets with 100% provisioning to ARCs. ?Rather than spending years in the court trying to recover our dues, we prefer selling these assets to recover at least a part of our dues,? he added.
The recovery or restructuring proceedings on sub-standard assets backed by securities are generally undertaken internally by the bank.
A senior official from an ARC said that the discounts have come down to 30-40% from the 60-70% levels prevalent about 2-3 years back. Bankers rate their stressed assets based on ratings received by external ratings agencies. The ratings take into account the recoverability of the loan, the security backing the loans, etc.
The official from the ARC, however, added that though several new assets are on the block, many of them are cases with little chance of recovery. ?We are not sure we would like to buy many of these assets. The chances or reviving them or recovering money through selling the securities are challenging,? he said.
