Asset reconstruction companies (ARCs), known as the scrap merchants of the banking sector, are gearing up for big business in the last quarter as banks put up their non-performing assets (NPAs) for sale.
Usually, banks sell a large part of their old NPAs in the last quarter to clean up balance sheets and avoid higher provisioning. Most of these accounts are those that have been NPAs for at least two-three years.
ARCIL, the biggest ARC in the country, expects the amount of NPAs coming up for sale this year to be more or less the same as the last financial year. MD and CEO S Khasnobis said “more than half the total amount is expected in the last quarter.”
A top official with India SME Asset Reconstruction Company (ISARC) said it had been a poor show this year as many deals (with banks) had not yet been closed. The firm has done transactions of about Rs 25 crore so far this financial year. It is targeting a three-digit figure.
Pricing continued to impact transactions, said an ISARC official. This is because both banks and ARCs bargain for desired valuations.
“So far, NPAs worth just Rs 10-15 crore have been sold. The quotes we are getting on unsecured loans are not very encouraging. We are waiting for better valuations,” said a senior official of a large public sector bank.
“For unsecured loans, ARCs will not quote more than 5-10 per cent of the principal outstanding,” said P H Ravikumar, managing director and chief executive officer, Invent ARC. Last year, the company’s first full year of operations, it acquired around Rs 700-800 crore of NPAs. This financial year it should be nearly double that amount.
Corporation Bank is yet to sell NPAs this financial year. “We have just started the process by empanelling the financial advisor for sale of assets to ARCs,” said CMD Ramnath Pradeep. Analysts expect the bank to sell Rs 400 crore of NPAs.
Also, NPAs were expected to be bigger in volume rather than number, Khasnobis said. He added the company might act as an agency for recovering banks’ bad debts.
The company had been able to recover around Rs 1,000 crore till December. “Recoveries for the last financial year were around Rs 1,500 crore,” he said.
According to him, this year, NPAs are not sector-specific. Also, the company would not be exposed to bad debts from microfinance institutions (MFIs) as it did not acquire loans worth less than Rs 1 lakh.
“MFI loans are usually under Rs 1 lakh, so we don’t acquire such loans,” he said.
