Banks invite bids for Rs 42,800 crore NPAs ahead of tough norms.
Banks in India – Public, Private Sector Banks – are biting the bullet and seeking to sell a record $7 billion of Non-Performing Asset (NPA) or bad loans to asset reconstruction companies as they rush to clean up their books ahead of stringent norms kicking in next year.
About 40 banks have invited bids for bad loans worth Rs 42,800 crore. This is almost four times the amount that were put up for auction in past quarters. The sudden eagerness on the part of banks to get junk loans off their books has also led to the rejuvenation of Asset Reconstruction Companies (ARCs), which have been dormant for nearly a decade.
Indian banks are facing their worst-ever bad loan crisis in more than a decade as a slowing economy and government indecision have led to companies defaulting. Gross bad loans rose to 4.1 per cent of assets in the December quarter from 4 per cent in the September quarter, said rating company ICRA.
State Bank of India heads the pack with loans of Rs 7,600 crore up for sale, followed by Bank of India at Rs 4,600 crore. United Bank of India, which ranks the worst in proportion of bad loans to advances, is putting up Rs 900 crore of bad assets for auction, while Central Bank of India is seeking to sell Rs 3,000 crore of them.
All these banks are state owned. “The confidence reposed in ARCs by the banks will have to be borne out or else they will not come back to sell stressed assets next year,” said P Rudran, managing director and CEO of Asset Reconstruction Company of India Ltd (ARCIL).