Only half of about Rs 15,000 crore bad loans on sale is likely to find success as a pricing mismatch between bankers and asset reconstruction companies (ARCs) continues to hinder the process.
Even as the March 2017 deadline for cleaning up their balance sheets nears, bankers have their task cut out.
“Bankers seem to have woken up and now we are getting many requests. About Rs 10,000-12,000 crore worth of assets would have been put up on sale in this quarter and only half of them may get concluded,” said the CEO of a top ARC.
Scrambling for time and recovery of the mounting bad loans, a recovery head of a top public sector bank said, “There would be asset sale of about Rs 15,000 crore for the entire sector. But we are still negotiating and trying to meet on an agreed level. We are under pressure to get the recovery process through by the year end. We are trying our best.” Echoing the ARC’s views,, the lender also maintained that only 40-50 percent of assets put on the block will find buyers.
Among some banks, Punjab National Bank had plans to put up Rs 1,800 crore worth of assets on sale, while UCO Bank Chief had said the bank would sell assets worth Rs 3,000 crore.
The guidelines released on September 1 last year push banks to make more NPA (non-performing asset) sales in return for cash rather than security receipts (SRs) to make sure that stressed asset sales by banks are actually ‘true sale’ of assets.
SRs are issued by ARCs to banks pending recovery from an account. Banks can encash them only after the loan concerned has been recovered by the ARC.
E-auction portals are also jumping in to help banks list their properties and find potential investors. While AuctionTiger, NPAsource, Bank e-Auctions are the leading players, Foreclosure and Entrust are among the new entrants.
Devendra Jain, Founder, NPAsource, said, “We are seeing an increase in the number of auctions but haven’t been able to find buyers for the properties even after discounting the prices. There is hardly a success of 5-7 percent in industrial properties while for residential properties, the success rate has been a little higher at 50 percent. These are properties below Rs 1 crore.”
With about Rs 3,000 crore worth of properties on auction, NPAsource has seen a sale of about Rs 300-400 crore. So, the success rate is barely at 10-15 percent, the market is not very good, Jain added.
Since August 2014, banks have to ensure that at least 15 percent of the NPA sales are in cash. However, banks did not have to provide for the loans sold in exchange of SRs. This will now change from April 1 likely forcing them to push more sales in exchange for cash.
The bad loans or NPAs in the banking industry as on December stand at about Rs 7 lakh crore.
In the second half of 2015, the then Reserve Bank of India Governor Raghuram Rajan initiated the Asset Quality Review (AQR) of banks and then set a deadline of March 2017 for banks to clean up their books. However, most experts see this to be some quarters away.
“Bankers are unwilling to take a haircut to sell bad loans; they are not even getting buyers; projects are still stuck and the economy seems to be struggling especially after demonetisation, how can we see a resolution?” said an executive with a company consulting banks on resolution of assets.
On Thursday, Finance Minister Arun Jaitley at the CNBC-TV18 India Business Leader Awards, said, “The problem of big NPAs (non-performing assets) is confined to at best 50 companies and therefore those 40-50 accounts need to be resolved. Now, in way of that resolution, several issues come up: You have to find a buyer, strategic partner to find a solution. And if people are slow at doing so, thinking that the system is somewhat hopeless, the system will have to bring in some other instruments.”
NPAs have reached 9.3 percent of the total loans extended by the entire (public and private) banking system taking the absolute bad loans worth nearly Rs 7 lakh crore, while NPAs of public sector banks were 11 percent of the total loans accounting for over 80 percent of bad loans.
Since the AQR, possibly up to a sixth of public sector banks’ gross advances are stressed (non-performing, restructured or written-off), and a significant majority of these are in fact NPAs. For banks in the worst shape, the share of assets under stress has approached or exceeded 20 percent. This estimate of stressed assets has doubled from 2013 in terms of what had been recognised by banks, as per RBI Deputy Governor Viral Acharya.