SASF opts for short-term NPA settlement

Stressed Assets Stabilisation Fund (SASF) is in a hurry to settle the Rs 9,000 crore of bad assets it had acquired from the Industrial Development Bank of India (IDBI).

It has decided to go for shorter term settlements of non-performing assets (NPAs) against the initial practice of allowing a prolonged period for repayment.

SASF is going in for sale of assets and also negotiating one-time settlements. It is selling Rajinder Steels and Usha Ispat and has renegotiated a one-time settlement with Pashupati Acrylon, after earlier having extended its repayment period to 11 years. The renegotiation with Pashupati yielded SASF Rs 10 crore, 42 per cent more than the book value of the loan.

SASF officials said the decision to go in for one-time settlements or to agree to a shorter repayment period was to prevent restructured loans from getting stuck in another downturn in business cycles.

The initial plan was to recover bad loans over 20 years and that's why the government had issued 20-year zero-coupon special bonds in lieu of bad assets taken over from the IDBI.

This was done to clean up the balance sheet of IDBI before it converted into a banking company from October 1, 2004. A total of 636 NPAs with book value of Rs 9,000 crore, including the funded exposure to Dabhol Power Company, were transferred to SASF.

SASF has thus far settled 185 cases for an aggregate amount of Rs 3,200 crore, which is 52 per cent higher than the book valued of Rs 2,100. SASF will also sell very sticky loans to asset reconstruction companies. SASF is also likely to transfer the exposure to Dabhol Power Company back to Industrial Development Bank of India (IDBI).