In a bid to attract more responses from asset reconstruction companies (ARCs), public sector lender State Bank of India (SBI) has streamlined the sale process and fixed a date for showcasing bad loans every month to ARCs.
According to sources, beginning April this year, the bank has been putting assets on the block on 10th of every month and seeking bids by 30th. A team of 10 bankers, headed by a general manager, sends out primary information memorandums (PIMs) or details of the loans to the 15 ARCs seeking bids.
“Earlier, the sales were irregular and the ARCs remained uncertain whether we would put loans for sale. But now on 10th of every month, they can expect assets from SBI,” a source said. The bank allows ARCs to conduct due diligence on the asset for 15-20 days before the bidding begins.
Eshwar Karra, CEO, Phoenix ARC, said being the largest bank, SBI puts quite a few big assets on sale and it is better for ARCs to be prepared in advance. “Since we have to pay 15% up front, it helps to decide where to invest our money.”
However, the bank has not been able to sell any assets this quarter although it has showcased R2,099 crore of bad loans. “We expect sales to pickup this month as, typically, sale of bad loans are muted in the beginning of the year as the ARCs need to replenish their funds,” the source added.
In March, SBI and its subsidiaries sold R1,500 crore of loans given to Abhijeet Group firm Corporate Power to Asset Reconstruction Company India (ARCIL) for R340 crore (at a discount of 77%), sources told FE. The company owes around R4,500 crore to a consortium of bankers, led by SBI.
Though banks have been selling bad loans to ARCs at a heavily discounted price, the discounts depend on the underlying value of the asset from which the recovery is to be made. In an earlier interview to FE, former chairman of ARCIL P Rudran had said the discount needs to be increased in FY15 since it was really low in FY14.
Lenders could sell non-performing assets worth R20,000 crore to asset reconstruction companies in FY15 out of more than R90,000 crore of assets put on sale. In FY14, banks had offered assets worth R40,000 crore and ARCs bought loans amounting to R22,000 crore.