Banks usually showcase these bad loans and subsequently strike a sale deal with asset reconstruction companies (ARCs), who buy them at a discount and later make money by going after the bank customers who took loans.
The acche din for banks looks a little far away. Struggling with a pile-up of bad loans, banks are still striving to clean up their balance sheets. They cumulatively put on auctions about Rs 1.25 lakh crore of bad loans in 2014-15, highest so far in any financial year, but ended up selling only one-fifth.
Top bankers told dna that loans extended to sectors such as infrastructure, iron & steel, metals, textiles and aviation turned out to be the highest bad loans, or non-performing assets (NPAs) in banking parlance, by value.
In the previous financial year, about Rs 75,000 crore of loans were showcased by the banks for sale.
Banks usually showcase these bad loans and subsequently strike a sale deal with asset reconstruction companies (ARCs), who buy them at a discount and later make money by going after the bank customers who took loans.
In 2014-15, State Bank of India (SBI) topped the table with the largest quantum of loans after putting up Rs 21,885 crore worth of loans for sale. Some banks such as ICICI Bank undertook direct bilateral deals with investors and did not come up in the auctions.
Though Rs 1.25 lakh crore worth of loans were showcased to ARCs, only a part of which were finally sold off. Bankers said only Rs 25,000 crore were actually sold to the ARCs during the year, lower than the previous year when ARCs bought bad loans worth about Rs 36,000 crore.
A senior SBI official said, "We have sold about Rs 12,000 crore of loans during the year, out of the total Rs 21,885 crore of bad loans that we showcased to the ARCs."
HDFC Bank sold corporate loans of Rs 550 crore to an ARC in fourth quarter ended March 31, 2015. The other banks that put up around Rs 6,000 crore cumulatively for the auctions included UCO Bank, Bank of India, Indian Overseas Bank, Syndicate Bank and United Bank of India.
Vijayalakshmi Iyer, chairman and managing director, Bank of India, said, "We sold about Rs 600 crore worth of loans during the year."
Sankar Krishnan, managing director, Alvarez & Marsal India, an international consultant with expertise on turnaround management, said the top five banks with high levels of stressed asses as a percentage of gross advances were Central Bank of India (which has 21% of its advances in the stressed category), United bank of India (20%), Indian Overseas Bank (17%) and Andhra Bank (15%).
Most loans doled out to companies in the manufacturing sector, real estate, power, infrastructure, steel and hotels. Among big NPAs, 60% of the bad loans to Bharati Shipyard were bought out by Edelwiess ARC, while NPAs to Leela Ventures were bought out by JM Financial ARC. Ispat and Orchid were the other big accounts that came into the market during the year.
A senior manager of a leading private asset management company said, "The problem for ARCs is to find investors for the assets. There are vulture funds interested in stressed assets and also high net worth individuals (HNIs). But they do not have proper structures in place through which they can invest into the country and repatriate their investments.
Of late, however, ARCs are finding it difficult to buy such bad loans after the Reserve Bank of India (RBI) made it mandatory to pay 15% of the sale value of the loan as upfront fee to the banks. Bankers cite this as a major reason for the drop in bad loan purchase by ARCs this year.
India has about 15 asset reconstruction companies (ARCs) that help banks recover bad loans. They engage in recovering both the retail loans – including your home and auto loans apart from huge corporate loans.
According the RBI data, top 10 borrowers accounted for Rs 28,152 crore of non-performing assets of PSU banks in last fiscal. NPAs of public sector banks rose sharply to 5.64% of their total advances in December 2014 from 4.72% in March 2014. For all banks put together, the gross NPAs are 4.1% of the banks' total gross advances, while gross restructured assets are 5.35% of total advances.
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