ICICI Bank offloads Rs 1300 cr NPAs

In India's first auction of bad loans, StanChart Bank bought out NPAs comprising 310 firms.

ICICI Bank, the country's second largest commercial bank, has sold Rs 1,300 crore worth non-performing assets (NPAs) to Standard Chartered Bank, in a first ever auction conducted for bad loans.

ICICI Bank had put a total of Rs 1,500 crore in bad loans of nearly 350 companies on the block.  The average life of the bad loans portfolio was six to seven years. They were on the books of ICICI Bank as NPAs for over two years.

The NPAs sold to Standard Chartered Bank represent 310 companies from various industry sectors. ICICI Bank had made "substantial provisions" for the NPAs  sold.

"Standard Chartered Bank will make cash payments. The payments to ICICI Bank will be less than the gross value of Rs 1,300 crore," ICICI Bank sources said.

The sources, however, declined to state the amount Standard Chartered Bank would pay ICICI for acquiring the NPAs.

Internationally, NPAs are auctioned at a discount of as high as 70-80 per cent of their price. As on September 30, 2005, ICICI Bank had gross NPAs of Rs 2,527 crore, minus about Rs 1,500 crore of investments in preferential shares which have turned bad. Its net NPAs stood at Rs 1,080 crore.

The largest private sector bank also had Rs 2,550 crore in security receipts in its books arising out of the sale of NPAs to Asset Reconstruction Company India (Arcil).

A total of seven banks "" six foreign and one Indian ""participated in the due diligence. These were Standard Chartered Bank, Bank of America, Kotak Mahindra Bank, Deutsche Bank, Barclays, Citigroup and JP Morgan Chase.

Standard Chartered Bank, Bank of America and Kotak Mahindra Bank went ahead and submitted bids for the NPAs. Standard Chartered outbid the other two in the race to acquire the NPAs.

PricewaterhouseCoopers (PWC) conducted the auction, considered a better price discovery mechanism. It was facilitated by the recent Reserve Bank of India (RBI) guidelines on the purchase of bad loans by banks and non-banking finance companies. The auction process had begun on September 26.

The auction route was adopted to sell NPAs in order to get cash upfront, as against security receipts received when sold to specialised asset reconstruction companies.