PSU Banks crack the whip on defaulters, sell off assets.
Public Sector Banks have been showing never-before urgency in getting rid of bad loans.
They have been selling stressed assets to asset reconstruction companies (ARCs) as soon as they realise that restructuring the debt won’t work, say banking sector executives.
The corporate debt restructuring (CDR) cell, a forum of lenders and borrowers which decides on restructuring programmes, doesn’t allow lenders to sell any loans when the restructuring process is ongoing. However, they can offload a loan if the CDR has failed or soon after the lender and debtor sign a master restructuring agreement.
According to a recent report from ratings firm Moody’s, high interest rates and delays in industrial projects are driving up bad loans at Indian banks.
Gross non-performing assets in the sector totalled more than Rs 2.43 lakh crore in 2013, up 35% from the previous year.
Meanwhile, new regulations requiring banks to set aside more money against bad and restructured loans are putting pressure on lenders to get such assets out of their books.
During the fiscal year ended on March 31, 2014, lenders sold close to Rs 50,000 crore of outstanding loans to ARCs, which buy stressed assets at deep discounts, help the creditors in restructuring operations and then collect the loans from them.
The CDR cell had approved a plan to recast Gujarat-based manufacturing company Electrotherm’s Rs 3,200 crore loans two months ago. Its consortium of 17 lenders led by Bank of India had asked the company to demerge its business into four independent units – steel, pipe, engineering and auto. But the programme failed to take off.
Then the bank bank had sold its loan to Electrotherm to JM Financial ARC through an auction. Similarly, IndusInd Bank sold its Deccan Chronicle loan to Pegasus ARC as soon as the bank realised that lenders had rejected a proposal to revive it at the CDR cell.