Public sector lender United Bank of India?s plan to get rid of bad assets worth about R300 crore in this quarter has hit a roadblock.
The RBI has tightened rules for asset restructuring companies (ARCs) offering ?unacceptably? lower prices for acquiring those bad loans. The Reserve Bank of India had last month announced new guidelines for ARCs, asking them to increase the mandatory upfront investment in security receipts (SRs) to 15% from the earlier 5%. United Bank said now the entire banking industry is finding it difficult to offload sticky loans as they are not in a position to take a big hit in terms of lowering the value of the asset.
?We are in touch with a few ARCs to sell our bad assets. But they are going for a very low price for our assets and that is not acceptable to us. We are waiting for a better price,? bank?s executive director Sanjay Arya told FE.
?As ARC?s investment in security receipts has been increased three-fold, they are now trying to negotiate lower prices for acquiring bad debt. Due to that, we are not seeing much transaction,? said Arya. The bank had earlier said it was eyeing sales of bad debts worth of R300-400 crore to ARCs in the second quarter this fiscal.
Crisil had said in August that very high growth of the country?s ARCs in recent times was expected to moderate to 30% in the following 12 months because of the amendments to regulations announced by the RBI. This was because, according to Crisil, in the near term, ARCs would find it challenging to align their pricing with the expectations of the asset-selling banks, given that the minimum investment requirement had been increased significantly.