Year-end blues: Banks rush to sell bad loans
With the fiscal year coming to an end, several banks are looking to sell their bad loan portfolio to strengthen their balance sheets.
By TNN |
MUMBAI :With the fiscal year coming to an end, several banks are looking to sell their bad loan portfolio to strengthen their balance sheets. Market sources said while some banks are entering into one-to-one deals, others are considering an auction of stressed assets. Banks planning an auction include State Bank of India (SBI), Allahabad Bank (AllBank) and UCO Bank.
While SBI and AllBank are keen to sell Rs 200 crore of stressed assets, UCO Bank wants to dispose loans with face value of Rs 260 crore. All three auctions are set to take place before the end of this year. Kolkata-based Industrial Investment Bank of India (IIBI), on the other hand, plans to sell off its assets, both performing (Rs 870 crore) and non-performing (Rs 200 crore), in April.
The bad loan market has become active in the past couple of years ever since the Reserve Bank of India (RBI) permitted sale and purchase of bad loans among banks. Also, the number of entities interested in acquiring such assets increased rapidly and simultaneously more and more state-owned banks gained confidence to dispose a part of their stressed portfolio through the auction route.
While SBI and AllBank are keen to sell Rs 200 crore of stressed assets, UCO Bank wants to dispose loans with face value of Rs 260 crore. All three auctions are set to take place before the end of this year. Kolkata-based Industrial Investment Bank of India (IIBI), on the other hand, plans to sell off its assets, both performing (Rs 870 crore) and non-performing (Rs 200 crore), in April.
The bad loan market has become active in the past couple of years ever since the Reserve Bank of India (RBI) permitted sale and purchase of bad loans among banks. Also, the number of entities interested in acquiring such assets increased rapidly and simultaneously more and more state-owned banks gained confidence to dispose a part of their stressed portfolio through the auction route.
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While Asset Reconstruction Company of India (Arcil) and Kotak Mahindra are the two dominant players, others include Deutsche Bank, JM Financial and ARCs like UTI-owned Asrec, Dhir & Dhir, International Asset Reconstruction Company and Pegasus.
Among the major one-to-one deals, ICICI Bank sold about Rs 300 crore stressed loans to Arcil and another
Rs 300 crore to Kotak Mahindra Bank a few months ago.
Pricing has emerged as one of the key hurdle in auctioning the loans. Sources said many banks have failed to sell the bad loan portfolio since the received the bids were lower than the reserve price - the minimum price the bank expects to receive for the asset put on the block.
For instance in the past couple of months, the Rs 1,000-crore auction held by SBI did not succeed because the bank was not very happy with the bids. Punjab National Bank���s Rs 500-crore auction also faced a similar fate. The recently held Rs 189-crore auction of Dena Bank too saw many ���expression of interest��� but very few actually bid. Sources said Kotak Mahindra was the only bidder for Dena Bank���s assets. The bank is yet to declare the final outcome of the auction, but sources said it is unlikely to succeed.
Market sources said in case of government-owned banks the success ratio of an auction is just between 25% and 30%. This is because most of these banks feel that they can recover much more than the offer made by buyers. The buyers, however, feel that their bids take into account their establishment cost and profits.
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���However, small ticket one-to-one deal is happening. But this activity typically peaks in the month of February and March due the to the year-end pressure to clean the balance sheet,��� added market sources. Scheduled commercial banks net NPA stood at Rs 20,100 crore in 2006-07 as against Rs 18,262 crore in the previous year.Start a SIP with as low as ₹500 with ET Money App!
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