IFCI not to hive off bad assets
For IFCI, the bad will co-exist with the good. IFCI has decided against hiving off its bad assets worth Rs 6,500 crore to its asset reconstruction arm.
By Priti Patnaik, TNN |
NEW DELHI: For IFCI, the bad will co-exist with the good. IFCI has decided against hiving off its bad assets worth Rs 6,500 crore to its asset reconstruction arm, as part of its ‘balance sheet management strategy’. Officials are of the view that stringent RBI norms on securitisation disincentivises IFCI from selling off its bad assets. While wooing investors for a 26% stake in financial institution, bad loans are being touted as having strategic value in IFCI.
Also, IFCI has fully provided for its NPAs, which means that any future NPA recovery will go straight to the bottomline. In case of IFCI, its receipts will exceed the book value. The net NPA level of IFCI is zero. It is aiming at recoveries of Rs 1,000 crore in the current year.
IFCI had already registered its Asset Reconstruction Company in 2002. “There is no need at this stage to hive off the bad loans. There is no advantage for doing so, in the light of RBI guidelines. There are about 150 good accounts and about 750 bad accounts,” a source at IFCI said.
Under RBI norms, companies cannot receive cash upfront in return for their securitised receipts. The guidelines were issued two years ago as banks and FIs had started securitising assets with the intention to get it off their books to meet capital adequacy requirements.
Banks sell bad assets to a Special Purpose Vehicle (SPV) in return for immediate cash payment. The bad loans, bunched into an SPV and security receipts in the form of bonds and equity, are issued against these loans. A net asset value (NAV) on these receipts is arrived at a year later, to give an indication whether there been an appreciation or a depreciation on banks’ portfolios.
The FI was originally planning to transfer its NPAs at 20% of the price into its ARC, which could then be securitised. ARCs buy bad loans at a discount from banks and FIs to restructure or rehabilitate them. They liquidate some of these loans within a definite timeframe.
Also, IFCI has fully provided for its NPAs, which means that any future NPA recovery will go straight to the bottomline. In case of IFCI, its receipts will exceed the book value. The net NPA level of IFCI is zero. It is aiming at recoveries of Rs 1,000 crore in the current year.
IFCI had already registered its Asset Reconstruction Company in 2002. “There is no need at this stage to hive off the bad loans. There is no advantage for doing so, in the light of RBI guidelines. There are about 150 good accounts and about 750 bad accounts,” a source at IFCI said.
Under RBI norms, companies cannot receive cash upfront in return for their securitised receipts. The guidelines were issued two years ago as banks and FIs had started securitising assets with the intention to get it off their books to meet capital adequacy requirements.
Banks sell bad assets to a Special Purpose Vehicle (SPV) in return for immediate cash payment. The bad loans, bunched into an SPV and security receipts in the form of bonds and equity, are issued against these loans. A net asset value (NAV) on these receipts is arrived at a year later, to give an indication whether there been an appreciation or a depreciation on banks’ portfolios.
The FI was originally planning to transfer its NPAs at 20% of the price into its ARC, which could then be securitised. ARCs buy bad loans at a discount from banks and FIs to restructure or rehabilitate them. They liquidate some of these loans within a definite timeframe.
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