Banks have started reducing the sale of bad loans to asset reconstruction companies, despite a rise in non-performing assets in the current financial year. The lenders are instead, focusing on strengthening their recovery teams to collect the dues.
Bankers said the prices offered by asset reconstruction companies on bad loans were no longer attractive and that their in-house teams were able to achieve better realisation. “We are focusing on recovering loans on our own. Asset reconstruction companies are not offering good values, because a lot of banks had approached them to sell stressed assets. Hence, though there were many assets available for sale, these companies had limited money,” said T M Bhasin, chairman and managing director, Indian Bank.
In 2010-11, Indian Bank sold Rs 700 crore of non-performing loans. However, so far this financial year, the Chennai-based lender has decided to recover loans on its own. It aims to collect Rs 1,700 crore of technically written-off assets. The bank has appointed three general managers to supervise credit delivery and loan recovery processes. It had earlier explored options like one-time settlement, negotiated settlement and the realisation of perpetual securities to recover non-performing loans. Small and mid-sized public sector banks are not the only lenders that are finding it difficult to secure good deals from asset reconstruction companies. Even large players, including India's largest lender, State Bank of India (SBI), is not finding the terms and conditions favourable.
A senior SBI official said though the bank had initially planned to put some of its assets on the block, the plan did not work out due to valuation. “In addition, we were offered security receipts, not cash, which leads to marked-to-market.”
“What is happening is reconstruction companies are not paying us cash. They are giving us security receipts. We will only sell if we get a good price, and when these companies pay cash,” said SBI chairman, Pratip Chaudhuri. Chaudhuri's views were echoed by K R Kamath, chairman and managing director, Punjab National Bank. “If I don't get a good price, I will not sell. I may put up an asset for sale, but if I feel I can get more money through recovery, I would recover it myself,” Kamath said.
United Bank of India has not sold any loans this financial year. “Our recovery teams are doing extremely well. Though there were slippages, recoveries have improved and upgradation of many accounts is taking place,” said Bhaskar Sen, chairman and managing director.
According to M G Sanghvi, executive director, Bank of Maharashtra, the commercial terms and conditions offered by asset reconstruction companies have not been favourable this financial year and the Pune-based lender was focusing on recoveries through its own staff.