Syndicate Bank has earmarked Rs 100 crore of bad debts to be transferred to an asset reconstruction company (ARC) during the current fiscal. |
R Chandrasekhar, general manager, Syndicate Bank told Business Standard, "The price at which bad debts are sold to ARCs vary account to account and depends on the recovery rate as well as the age of the bad debt." |
"We are in negotiations with Asset Reconstruction Company India Ltd (ARCIL) to sell our bad assets," he added. However, he declined to mention the negotiating price at which these bad debts will be transferred to ARCIL. |
The bank has already transferred about Rs 35 crore worth bad assets to ARCIL so far. |
Syndicate Bank's gross non-performing assets (NPAs) was Rs 143.27crore ,representing 5.17 per cent of gross advances in 2004-05 as compared to Rs 158.99 crore, representing 7.33 per cent of the gross advances as on March 31, 2005. |
The net NPAs was 1.59 per cent of the net advances in value terms and accounted for Rs 42.58 crore as on March 31, 2005 as compared to Rs 53.22 crore accounting for 2.58 per cent of net advances in 2004-05. |
The bank's total loan under the corporate debt restructuring (CDR) is Rs 60.8 crore of which a large chunk of Rs 51 crore falls under the standard assets and Rs 3.9 crore and Rs 5.7 crore comes under sub-standard asset and doubtful assets. |
ARCs purchase the bad loans from banks and financial institutions at a discount which will clear the bank's balance sheets of sticky loans. In turn, these assets are reconstructed or re-packed by ARCs which are then sold in the market in various forms or recovered through securitisation and reconstruction of enforcement of security. |
The reason many banks resort to selling of bad loans to ARCs is mainly because their books gets instant clearance from the burden of the bad debt which they are not able recover or will require a long time recovery. |