State Bank of India (SBI), the country’s largest lender, said on Saturday it has seen a little easing of stress on power sector loans on the back of fuel linkages, but is not looking for any fresh exposure to this sector immediately.
SBI chairman and managing director Arundhati Bhattacharya, speaking on the sidelines of an event to mark International Women’s Day in Kolkata, also said non-performing assets (NPAs) management and customer delivery were focus areas for the bank.
She said the SBI was planning to sell a portion of its NPAs to asset reconstruction companies (ARCs) during the fourth quarter this fiscal. Declining to divulge any target figures to offload bad loans, she said, “I cannot tell you the numbers, but depending upon the offers we get, we will certainly sell NPAs this quarter.”
On further credit to the infrastructure sector, she said, “The infrastructure sector continues to be under stress. But we have been seeing some turnaround, especially in the power sector. But immediately, I am not seeing any further credit for it. New projects have to come for this to happen.”
Fuel linkage had been a big concern for the country’s power sector and to ease this the central government has asked Coal India (CIL) to sign fuel supply agreements (FSAs) with power plants. Accordingly, the state-run coal major signed more than 150 FSAs for a capacity of 71,145 MW till December last year.
Significantly, SBI’s asset quality remains under pressure due to higher exposure to stressed sectors such as infrastructure, including power, iron and steel and textiles, which account for most slippages in the corporate segment. The bank’s exposure towards infrastructure sector at the end of third quarter this fiscal stood at above R1,34,000 crore, which was about 13% of its total domestic advancement.
The public sector lender’s gross NPAs stood at R67,799.33 crore at the end of December last year, up from R53,457 crore in the year-ago period.
As of December 31, 2013, the bank's portfolio quality declined, with gross NPAs at 5.73% of gross advances, as against 5.30% a year ago.
http://www.financialexpress.com/news/sbi-to-sell-its-bad-loans-no-more-credit-to-power-sector/1232233
Banks rush to offload bad loans to asset reconstruction firms-LiveMint
Rs.20,000 crore in bad loans put up for sale so far this fiscal, much higher than Rs.12,000 crore seen in 2012-13
Mumbai: Asset reconstruction companies (ARCs), or aggregators of non-performing assets (NPAs) of banks, have seen a large jump in supply of such assets this fiscal as lenders scramble to clean up their books.
Asset Reconstruction Co. (India) Ltd (Arcil), the largest aggregator of such loans in India, estimates that Rs.20,000 crore in bad loans has been put up for sale so far this fiscal, much higher than the Rs.12,000 crore seen in 2012-13.
Of this, Rs.6,000 crore to Rs.7,000 crore in bad loans has already been purchased by ARCs so far this fiscal, up from around Rs.2,000 crore last year, according to P. Rudran, managing director and chief executive, Arcil.
“Just like people choose to give away their old clothes when their closets are full, this year there has been a sharp increase in NPAs for sale to ARCs, because banks are eager to sell these assets noting the quick rate at which they are growing,” Rudran said.
Gross NPAs of listed banks have risen consistently in the last two years as the economy has grown at its slowest pace in more than a decade. From Rs.1.32 trillion at the end of the March 2012 quarter, such loans swelled to Rs.1.79 trillion by December 2012, and to Rs.2.43 trillion at the end of the December 2013 quarter.
To be sure, bank NPAs have been on the rise for the last many quarters, especially across public sector banks. However, attention to the issue was magnified after Kolkata-based United Bank of India reported gross NPA equalling 10.82% of advances for the December 2013 quarter. The bank reported a record Rs.1,238.08 crore loss in the December quarter.
As bad loans surged and capital adequacy at the bank hit the minimum required level of 9%, United Bank was forced to stop giving fresh loans.
On Wednesday, news agencies reported that the lender also plans to sell more than Rs.700 crore in NPAs to asset reconstruction companies.
Just like United Bank, Chennai-based Indian Bank in a newspaper advertisement on Wednesday sought bids for “18 individual NPAs” without giving out the total quantum of loans being sold.
Top lenders like State Bank of India (SBI), Canara Bank, Bank of Baroda and Union Bank of India are also looking to get rid of their sticky assets, confirmed a senior official at an asset reconstruction company, who did not want to be named.
V.P. Shetty, executive chairman at JM Financial Asset Reconstruction Co. Pvt. Ltd, said that this year the amount of NPAs for sale has been the highest since his company’s inception.
“We started out operations at the fag end of 2008-09 and in our five-year cycle this year the loans in the market are at the highest,” said Shetty.
ARCs expect banks to offload more NPAs in the immediate future, following new guidelines introduced by the Reserve Bank of India (RBI) last month, which incentivized banks to recognize and dispose of NPAs early. The guidelines were notified on Wednesday and will come into effect from 1 April.
“Banks can now sell even standard accounts in SMA 2 category to ARCs,” Rudran said. SMA 2 category loans are those that are overdue for 61 to 90 days and are on the verge of being classified as NPAs.
Generally, banks only consider selling loans that have already been classified as NPAs. Loans more than 90 days overdue are classified as NPAs.
“This is basically a preventive measure. One notable outcome of the recent change in guidelines is that ARCs are recognized for reconstruction of NPAs, and hence younger NPAs are coming in the market for sale to ARCs. Going forward, I feel, this will greatly help in NPA resolution,” Rudran said.
Besides, in the case of cash sales, the guidelines have for the first time allowed banks to directly book the profit or sale of a bad asset to an ARC in the profit or loss account and not a separate account.
However, a majority of NPA sales by banks to ARCs are not in exchange for cash, but in return for so-called security receipts (SRs), which are issued to banks pending recovery from an account. These SRs are then encashed after the loan is recovered.
In the recent guidelines, RBI has also permitted leveraged buyouts of stressed companies, by specialized entities such as private equity or venture funds, which buy out stressed assets only to re-sell them post restructuring.
“Appropriate incentive structures may be built so as to provide greater role to PE (private equity) firms and other institutions in restructuring of troubled-company accounts. These institutions can be expected not only to bring additional funds for restructuring, but also bring in expertise for management of the business unit in question,” RBI said in a statement on 30 January.
Currently, ARCs mostly buy NPAs of small- and medium-sized companies as buying larger loans require a significant amount of funds, technical skills and expertise. The recovery of large industrial accounts can also be a long-drawn and complex affair.
Shetty from JM Financial said most of the loans up for grabs in the market, are loans outstanding with medium-sized companies, which have failed to restructure their debt via the corporate debt restructuring (CDR) process.
“These loans have an average exposure of Rs.250 crore to Rs.500 crore. Both public sector as well as private sector banks are coming to sell as banks want to clear their books and want to give it to specialists companies which do just this job,” Shetty said.
The actual recovery of bad loans, however, continues to remain a challenge for ARCs, even as banks have shed their reluctance to part with their loans.
“Due to the economic slowdown, the recovery continues to be unsatisfactory. But banks have now realized that ARCs are their partners and it makes a lot of business sense to work with us. There is an enhanced understanding of the business and there is a lot of improvement in flow of information. We expect more loans to come in the market,” Rudran said.
http://www.livemint.com/Industry/LOVMhFHvadzkEkGefml7NO/Banks-rush-to-offload-bad-loans-to-ARCs.html
Relief to banks on asset sales to ARCs-Hindu Business Line
Mumbai, Dec. 17:
The excess provision on any bad loan which is sold to an asset reconstruction company (ARC) for a higher value can be reversed to the bank’s profits, the RBI said on Tuesday.
“Sale of assets to ARCs at a stage when the assets have good chance of revival and fair amount of realisable value, for rehabilitation and reconstruction, is encouraged,” said an RBI discussion paper released on Tuesday.
This, the RBI said, was done to bring in uniformity and incentivise banks to recover the appropriate value of their non-performing assets promptly.
If the sale value is lower than the net book value, the shortfall can be spread over a period of two years. This facility of spreading the shortfall would however, be available for NPAs sold up to March 31, 2015, the RBI said.
Currently, the excess provision is not allowed to be reversed in case the asset sale value is higher and banks are required to provide for any shortfall if the sale value is lower.
The central bank will also allow banks to use floating provisions towards additional provisions incurred at the time of NPA sales without prior permission of the RBI.
Also, the RBI will withdraw the minimum holding period of at least two years for an NPA to be eligible for sale, however, maintaining that the bank purchasing the NPA cannot sell it for a year.
Banks could also be allowed to extend finance to adequately capitalised promoters to acquire troubled companies.
However, promoters of the defaulting borrowers will be barred from buying back the asset from the ARCs.
Between ARCs
The RBI wants the Government to consider allowing sale of assets between ARCs to encourage liquidity and price discovery of stressed assets.
The RBI wants the Government to consider allowing sale of assets between ARCs to encourage liquidity and price discovery of stressed assets.
The central bank will also consider the ability of ARCs to raise limited debt funds to rehabilitate units increasing their minimum level of capitalisation, encourage assets under management targets for ARCs and make the bidding process for price discovery more transparent.
Some banks have their own policy to provide commission to staff for recovery of NPA. But many times, the circular is not followed or misinterpreted or claims are ignored.Sometimes, partiality is also seen in allowing commissions. Thus the majority staff/officers are found reluctant in recovery of old loans. The banks must look into the matter and simplify the circular at least for performers in this field.
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