In a first, SBI to sell around Rs 5000-cr NPAs to ARCs shortly

Mar 17 2014, 18:40 IST
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SBI is going all out to stem the rot by offloading around Rs 5,000 crore of its Rs 67,799 crore dud assets to ARCs before the end of the month. Reuters SBI is going all out to stem the rot by offloading around Rs 5,000 crore of its Rs 67,799 crore dud assets to ARCs before the end of the month. Reuters
SummarySBI added Rs 11,400 crore in fresh slippages, including Rs 9,500 crore from SMEs and mid-corporates.

quarter, as much as Rs 67,799 crore of its Rs 11,83,723 crore assets or advances as classified as NPAs, or 5.73 per cent up from Rs 64,206 crore or 5.64 per cent in the previous quarter. While its net NPAs stood at Rs 37,167 crore or 3.24 per cent in Q3 and Rs 32,151 crore or 2.91 per cent in the previous quarter when its total net NPA was at Rs 11,39,326 crore.

Media reports said banks, mostly state-run ones, are scurrying to sell close to Rs 43,000 crore to ARCs by the end of the month as the total bad assets in the system rose to 4.1 per cent of the total advances. This is almost four times the amount that were put up for auctions in the past quarter.

The urgency of bans come as the central bank under the new Governor Raghuram Rajan has been encouraging lenders to clean up their books.

In his inaugural address on September 4 last, Rajan had famously said that promoters of failed companies have no divine right to remain in control of such companies.

The rush to offloan bad loans is also to guard them against higher loan loss provisions that kick in from next March, by when all restructured loans would be classified as non-performing accounts attracting higher provisions.

On May 30 last year, the RBI had tightened the norms for loan restructuring norms by raising provisions to 5 per cent in line with the global practices, in a gradual manner.

As per the RBI notification, provisioning on the newly restructured account was raised to 5 per cent from June 1, 2013 from 2 per cent. However, for the old CRD accounts it would be done in a phased manner till April 2015.

What was more important was that the RBI had said the existing "regulatory forbearance" would no longer be available from April 1, 2015, therefore the urgency of banks to offload bad loans now.

As per existing guidelines, an account after restructuring is not classified as NPA. However, as per the new norms, restructured account would be treated as NPA.

The RBI had also said promoters of companies seeking CDR should bring in at least 20 per cent of banks' sacrifice or 2 per cent of the restructured debt as fresh equity.

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