BoB puts NPAs worth Rs 460 cr on block

Bank of Baorda (BoB) has put on block non-performing corporate loans worth Rs 460 crore to further clean up its books. The public sector bank's net NPAs are already close to 0.5 per cent.

The bank has already opened data room for prospective buyers and seven investors are examining a portfolio of 109 accounts with principal outstanding of Rs 460 crore. These NPAs accounts are from Mumbai and Maharashtra region, a senior BoB executive said.

"We have made full provisions for these accounts and decided to sell them only after exhausting the options of direct recovery. In case of some accounts, the recovery of outstanding may still be possible through direct negotiations but may not be worth the time required for such exercise", the executive added.

Only asset reconstruction companies, non-banking finance corporations, banks and financial institutions are permitted to participate in the NPA sale process.

The NPA cases are a mix of large units as well as small and medium enterprises. The proposed sale has a potential to improve the bank's bottomline. However, the nature of benefits (profits) would depend on how the transactions are treated in the books.

Following cases where NPAs were sold for much less than the value of available securities without any justification, Reserve Bank of India (RBI) has asked banks to ensure that economic value of financial assets are estimated reasonably.

Such estimation should be based on the assessed cash flows arising from repayment and recovery prospects. The sale price should generally not be lower than the net present value, RBI said.

The Mumbai-based bank has already made cash recovery of Rs 505 crore from NPAs in April-September 2007 as against Rs 286 crore in the same period last year.

According to Reserve Bank of India data, the gross NPAs of commercial banks declined in absolute terms during 2006-07, albeit marginally, as the recovered and written-off NPAs exceeded the fresh additions during the year.

While the absolute gross NPAs of public sector banks and old private sector banks declined during the year, those of new private sector banks, foreign banks and State Bank group registered an increase.

The overall gross NPAs of scheduled commercial banks (SCBs), which had declined sharply by Rs 8,276 crore during 2005-06, reduced by Rs 611 crore in 2006-07. The gross NPAs as percentage of gross advances declined to 2.5 per cent during the period from 3.3 per cent by the end of March 2006.