GTB may sell Rs 500 crore bad loans to ARCIL

Global Trust Bank (GTB) is understood to be in talks with the Asset Reconstruction Company of India Ltd (ARCIL) to sell its non-performing assets (NPAs) worth Rs 500 crore.

GTB, which has recovered about Rs 650 crore in bad loans from defaulters over the last two years, is expected to complete its capital raising exercise by this month-end.

"ARCIL has shown interest and willingness and senior bank officials are expected to initiate discussion with ARCIL in the next few days," sources close to the deal told Business Standard.

The move to sell a substantial portion of the bad loans to ARCIL is expected to have a favourable impact on the valuation of the bank, which is in talks with foreign strategic investors.

"The move to sell the NPAs to ARCIL has taken time but it should see the bank getting into a better position to clinch a deal and also get a better valuation," the sources said.

GTB's move to sell its sticky assets will see ARCIL issuing security receipts but without any guarantee on returns. More importantly, the NPAs will reflect under the investment head of the bank's books rather than on the advances side.

The much-delayed deal with the foreign strategic investors is expected to be clinched over the next couple of weeks and the bank is expected to get fresh funds of over Rs 650 crore.

Sudhakar Gande, managing director of GTB, said, "The capital raising exercise has taken longer than anticipated. Right now we are moving in the right direction. We are confident of finalising the deal by the month-end."

"GTB is a good viable proposition for investment from the point of view that it does not have a huge employee strength, is technology driven and the manpower is very young," the sources said.

GTB has 104 branches, a customer base of 10 lakh and staff strength of 1,400, which is much lower compared with some public sector banks of a similar size.

"Apart from this, the quality of new credit of Rs 1,500 crore that the bank has disbursed over the last 24 months is very good and the NPAs on this account is less than 1 per cent," sources said.

Over the last couple of years, banks which have been in financial trouble have seen more options coming up for raising capital.

While the option of government-sponsored bailouts have always been open for nationalised banks, the creation of asset reconstruction companies as well as a proactive regulator in the RBI have helped.

In the last decade, the government has, since 1994, invested a whopping Rs 15,521 crore as Tier-I capital into 19 nationalised banks.