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State Bank of India (SBI) has put 66 loan accounts, with loans worth Rs.4,400 crore, for sale to asset reconstruction companies (ARCs) in July, a senior official at the bank confirmed.
According to the official, who spoke on condition of anonymity, most of these accounts are small and medium enterprises with very few retail accounts.
“These are all assets with loans under Rs.1,000 crore individually. We are expecting ARCs to pick up a large chunk of these assets as recoveries can still be made here,” the official said.
On Thursday, CNBC TV-18 first reported that SBI was looking to sell 66 accounts to ARCs, including loans of Rs.540 crore given to GET Power, Rs.415 crore to XL Energy and nearly Rs.150 crore to Corporate Ispat.
In the April-June quarter, SBI was able to sell assets worth approximatelyRs.250 crore out of the Rs.2,500 crore worth of assets it had put up for sale, as ARCs showed a significantly lower appetite to buy assets due to a change in banking rules.
“In the June quarter, ARCs had bought over Rs.5,000 crore worth of assets, of which, our share would be between Rs.3,500 crore and Rs.4,000 crore” said Siby Antony, managing director and chief executive officer, Edelweiss ARC Ltd.
While banks had been tough on pricing of bad assets which were put up on sale earlier, they are now agreeing to more discounts in valuations in line with the expected recoveries from them, according to the chief of another ARC, who spoke on condition of anonymity.
“The asset sales might be part of a broader banking sector strategy, where lenders are looking to sell assets to an ARC, which is a far more efficient platform for recovery under the SARFAESI (Securitisation And Reconstruction of Financial Assets and Enforcement of Security Interest) Act,” said Ananda Bhoumik, senior director and head-financial institutions at India Ratings & Research, the domestic arm of Fitch Ratings.
Typically, banks sell bad loans to ARCs to reduce their burden of non-performing assets and improve their chances at recovery from the asset. Over the past year, asset sales have slowed down due to revised norms on asset purchases and capital raising activities not yielding desired results.
For example, in the quarter ended 31 December, ARCs purchased assets worth Rs.650-700 crore from banks, while during July-September 2014, sales stood at around Rs.1,600 crore. In comparison, April-June 2014 had sales worth Rs.10,000-15,000 crore by banks to ARCs.
In August last year, the Reserve Bank of India (RBI) released guidelines asking ARCs to pay 15% of the net asset value upfront while purchasing the asset from the bank, while issuing security receipts for the remaining amount, which can be redeemed at a later date. This was much higher than the previous 5% upfront cash requirement.
India’s largest lender has been pushing for better recovery from the bad assets in its loan book since a few quarters now. On 12 June, the bank had put up 479 properties, which it had seized from delinquent borrowers for auction. Out of this, SBI managed to sell 110 properties, recovering Rs.145 crore in the process. In May, the bank had conducted a loan recovery week, where it had urged SMEs and retail borrowers to come and settle their loans.
SBI was able to recover Rs.800-850 crore from this activity. The majority of these loans were given to retail borrowers.(LiveMint)
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