Banks to auction Rs 9k-crore bad loans to boost profits; IDBI Bank tops list

MUMBAI: At least 15 banks are auctioning distressed assets of Rs 9,000 crore, a move aimed at cleaning up their books and shoring up profits before the close of the financial year. The big-ticket loans on the block includeRs 2,900 crore from IDBI Bank, Rs 1,041 crore from State Bank of India andRs 967 crore from UCO Bank, people privy to the development said.

“Auction of bad loans generally picks up momentum in last quarter of a fiscal year as banks go on an overdrive to clean their books,” said Siby Antony, CEO of Mumbai-based Edelweiss Asset Reconstruction. “But this year has seen a sharp rise not only in the quantum of loan up for sale but also the number of banks showing interest to selling stress loans.” The size of the sale, however, is a fraction of the bad loans in the Indian banking system.

As per RBI data, bad loans of commercial banks before provisioning stood at Rs 1,42,300 crore in March 2012, up 45% from a year ago. Some of the other banks that plan to sell bad loans are Central Bank of India (Rs 546 crore), Allahabad Bank (Rs 576 crore), Andhra Bank (Rs 624 crore) and Indian Overseas Bank (Rs 626 crore).

According to banking sector executives, most banks have indicated their preference for cash in exchange of bad loans.

“The idea is to speed up the recovery process, and since the ARCs are specialised agencies, we felt that it is better to auction bad loans,” said BA Prabhakar, chairman and managing director of Andhra Bank.

The executives also said that some private banks have struck bilateral deals to offload bad loans. IndusInd Bank, for instance, recently sold itsRs 100-crore loan given to Deccan Chronicle Holdings to Pegasus Asset Reconstruction. The loan, classified as non-performing, was sold against security receipts.