Amid the bad loan crisis which is ailing the public sector banks, India’s second-largest lender Punjab National Bank (PNB) will sell non-performing assets (NPA) worth Rs 215 crore in three companies. PNB will sell NPAs in Shree Sidhbali Ispat Ltd (Meerut), Sri Guruprabha Power Ltd (Chennai), and Dharamnath Investment (Mumbai) worth Rs165.30 crore, Rs 31.52 crore, and Rs 17.63 crore respectively.
The bank will sale NPAs to either asset reconstruction companies (ARCs), banks, NBFCs or financial intuitions. Banks usually sell NPAs when they are unable to recover loans from the defaulting parties. Since the job of the bank is not to recover loans, they sell these NPAs to ARCs and other intuitions, who, in turn, would be responsible for recovering the loans.
India’s 21 PSBs are embroiled under a huge pile of bad loans, making India world’s fifth largest country in terms of NPAs. Of the total NPAs worth over Rs 7.33 lakh crore as on 31 December 2017, PNB has Rs 55,200 crore as bad loans. With over 7% NPAs of total loans, PNB with four other banks is on the verge of being put under Reserve Bank of India (RBI) watchlist, according to a report by ICRA.
Currently, 11 out of 21 PSBs are already under RBI’s Prompt Corrective Action (PCA), which restricts banks from granting fresh loans and dividend distribution. RBI’s decision to put a bank under PCA is dependent on three factors capital adequacy ratio (CAR), net NPAs, and return on assets (RoA).
In February this year, PNB became the centre of controversy when it revealed that diamondtire Nirav Modi in collusion with a former bank official allegedly defrauded the lender to the tune of Rs 13,000 crore by obtaining fake LoUs. While multi-agency probe into the matter is going on, at least 8 other cases of bank fraud have been uncovered or reported so far.