UCO Bank to offload bad loans worth Rs 1,900 cr

Second NPA sale in FY14; move aimed at containing pressure on balance sheets

With growing pressure to manage bad loans, banks are rushing to offload non-performing assets (NPAs) before the end of the financial year in March. After Oriental Bank of Commerce and Dena Bank, Kolkata-based public-sector lender UCO Bank has put 100 non-performing accounts with outstanding balance of Rs 1,900 crore on the block. This is second time in the current financial year that UCO Bank is selling its NPAs. In June 2013, it had announced sale of 31 NPA accounts with outstanding balance of Rs 555 crore.

In per cent terms, UCO Bank’s gross NPAs stood at 5.32 per cent at the end of September 2013, up from 4.88 per cent from the year-ago period. According to a notice on the UCO Bank website, these NPAs are being offered on “cash and security receipts basis”. That means, the bank will use both the routes – selling on cash basis and issuing receipts to buyers. In the latter case, buyers earn as and when the recoveries happen from sale proceeds.

  Two senior executives with asset reconstruction companies said banks are now more inclined to take out NPAs from their books to contain pressure on balance sheets. The pace of growth in cash flows has been tepid, too.

The RBI and the government are facing flak over mounting bad loans. This is one of the reasons why state-owned banks are also getting rid of some accounts, said the head of a large asset construction company. In December 2013, Dena Bank came up with plans to offload loans to 51 accounts with outstanding balance of about Rs 596 crore. Its gross NPAs stood at Rs 1,968 crore (three per cent) at the end of September 2013.

Gurgaon-based Oriental Bank of Commerce will sell NPAs of 27 accounts having principal outstanding of Rs 639.67 crore. Its gross NPAs was about Rs 4,887 crore (3.77 per cent) at end-September 2013, according to Capitaline data. The economic slowdown for over the past two years, stretched working capital cycles, higher interest rates have pushed many companies across sizes to the brink of default. The extent of rise in NPAs has been unprecedented.

According to the Reserve Bank of India data, the gross NPAs of commercial banks swelled from Rs 94,121 crore (2.36 per cent) in March 2011 to Rs 2,36,245 crore (4.22 per cent) by end-September 2013, according to RBI data.

As a step to revive almost moribund activity in asset reconstruction segment, RBI mooted a slew of steps including allowing banks to take excess provision (for NPAs) to profits. It also allowed banks to spread loss over two years for assets sold below net book value. RBI plans to allow banks to reverse the excess provision on sale of NPA (if the sale is for a value higher than the net book value) to its profit and loss account in the year the amounts are received.