 "More banks hawk loans gone sour")
Oriental Bank of Commerce and Dena Bank plan to sell 78 non-performing loans between them, to contain pressure on their balance sheets.
The prolonged economic slowdown, stretched working capital cycles and higher interest rates have pushed many companies across sizes to the brink of default. The extent of rise in non-performing assets (NPAs) has been unprecedented.
According to Reserve Bank of India (RBI) data, gross NPAs of commercial banks ballooned from Rs 94,121 crore (2.36 per cent) in March 2011 to Rs 236,245 crore (4.2 per cent) by end-September 2013.
There are growing signs of banks becoming ready to sell some of the bad loans in their portfolios, to keep on holding these in the hope of realising value. The pace of growth in cash flows has been tepid and banks’ holding power on NPAs is going down in the present business environment.
Dena Bank, the Mumbai-based public sector lender, plans to offload loans to 51 accounts, with dues of Rs 596 crore. Its gross NPAs are Rs 1,968 crore (three per cent of the total). Gurgaon-based OBC will sell NPAs of 27 accounts, having principal dues of Rs 640 crore. Its gross NPAs were Rs 4,887 crore (3.8 per cent) at end-September, according to Capitaline data.
Both banks have indicated that NPAs could be sold on a cash basis or issuance of securities’ receipts or a combination.
Public sector bank executives said lenders might prefer to get security receipts (for sale) in cases where a unit is viable and has potential for revival, seeing an advantage in staying invested.
Chintan Shah, assistant vice-president with Special Situation Advisors Pvt Ltd, said in the current financial year, 16 banks had put bad loans worth Rs 7,000 crore on the block for interested buyers. During the fourth quarter (January-March 2014) more would be in the market to do so.
State Bank of India, the country’s largest lender, is sticking to a target of selling NPAs worth Rs 3,000-4,000 crore in 2013-14. However, the proposed more liberal regime for asset buys and sales should see more activity in 2014-15.
“Banks look for best possible value, while buyers such as asset reconstruction companies would like to buy at a low price. The net outcome of these dynamics are very few successful deals,” says an analyst with a broking house.
This picture could change in 2014. RBI has proposed a framework of incentives for prompt decisions on restructuring or sales, so that assets do not become a problem. There will be penalties like accelerated provisioning for dragging one’s feet in deciding the fate of such accounts.
The prolonged economic slowdown, stretched working capital cycles and higher interest rates have pushed many companies across sizes to the brink of default. The extent of rise in non-performing assets (NPAs) has been unprecedented.
According to Reserve Bank of India (RBI) data, gross NPAs of commercial banks ballooned from Rs 94,121 crore (2.36 per cent) in March 2011 to Rs 236,245 crore (4.2 per cent) by end-September 2013.
There are growing signs of banks becoming ready to sell some of the bad loans in their portfolios, to keep on holding these in the hope of realising value. The pace of growth in cash flows has been tepid and banks’ holding power on NPAs is going down in the present business environment.
Dena Bank, the Mumbai-based public sector lender, plans to offload loans to 51 accounts, with dues of Rs 596 crore. Its gross NPAs are Rs 1,968 crore (three per cent of the total). Gurgaon-based OBC will sell NPAs of 27 accounts, having principal dues of Rs 640 crore. Its gross NPAs were Rs 4,887 crore (3.8 per cent) at end-September, according to Capitaline data.
Both banks have indicated that NPAs could be sold on a cash basis or issuance of securities’ receipts or a combination.
Public sector bank executives said lenders might prefer to get security receipts (for sale) in cases where a unit is viable and has potential for revival, seeing an advantage in staying invested.
Chintan Shah, assistant vice-president with Special Situation Advisors Pvt Ltd, said in the current financial year, 16 banks had put bad loans worth Rs 7,000 crore on the block for interested buyers. During the fourth quarter (January-March 2014) more would be in the market to do so.
State Bank of India, the country’s largest lender, is sticking to a target of selling NPAs worth Rs 3,000-4,000 crore in 2013-14. However, the proposed more liberal regime for asset buys and sales should see more activity in 2014-15.
“Banks look for best possible value, while buyers such as asset reconstruction companies would like to buy at a low price. The net outcome of these dynamics are very few successful deals,” says an analyst with a broking house.
This picture could change in 2014. RBI has proposed a framework of incentives for prompt decisions on restructuring or sales, so that assets do not become a problem. There will be penalties like accelerated provisioning for dragging one’s feet in deciding the fate of such accounts.