Banks unable to find buyers for seized assets of defaulters

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Mumbai | June 27, 2015 1:48 PM

Sluggish economy, land acquisition ensure properties remain unsold.

reserve bank of indiaSluggish economy, land acquisition ensure properties remain unsold. (PTI)

Already weighed down by bad loans, Indian banks are finding it tough to recover assets through auction of seized properties. Despite multiple attempts by banks to sell distressed assets, there are few buyers because of the slowdown in the economy, legal hurdles and problems related to acquisition of land.

Seized assets of at least five big defaulters — Zoom Developers Pvt Ltd, Deccan Chronicle Holdings Ltd, Century Communication Ltd, Mahua Media Pvt Ltd and Biotor Industries Ltd — have had no takers for more than a year, according to bankers and recovery agents who spoke on the condition of anonymity.

While some of these properties are located in far-flung areas, even those in prime locations such as Bandra in Mumbai and Noida in the National Capital Region have no takers. Most of these properties have been put up for e-auctions by banks more than once, according to advertisements reviewed by The Indian Express.

Zoom Developers owes Rs 3,002 crore to at least 24 banks, Deccan Chronicle has borrowed Rs 4,000 crore from 18 banks, Century Communication and its group firms including Mahua Media owe Rs 1,900 crore, and Biotor Industries has an exposure of close to Rs 1,000 crore to Indian banks. All these companies are being probed by multiple investigating agencies in India.

Emails sent to these five companies seeking comments did not elicit a response.

At least four recovery agents and two top bankers whom The Indian Express spoke to say recovery of bad loans through sale of assets is turning out to be a daunting task.

At the end of March 2015, at least Rs 11 out of every Rs 100 lent by banks had either turned bad or been restructured — that is, renegotiated for longer tenure or lower interest.

Outstanding bad loans totalled around Rs 3 lakh crore, with the slowdown having come back to bite many corporates which had borrowed during the high growth years of 2004-2009 to fund projects, especially in infrastructure. Many of them are now finding it tough to even meet their interest repayment obligations, thus impacting banks.

Restructured assets of banks are now close to Rs 4 lakh crore. The proportion of impaired assets will rise to 13 per cent of total advances by March 2016, according to credit rating agency Fitch. The challenge is severe especially for state-owned banks, forcing them to apply the brakes on lending. Loan growth in the past year was at a multi-year low at below 10 per cent.

The Reserve Bank of India has also stepped in with tougher rules now, the latest being the strategic debt restructuring scheme which allows lenders to take control of defaulting firms.

Consider the case of Deccan Chronicle. On July 6, Andhra Bank plans to conduct an auction to sell a Chennai land and building owned by it for Rs 72 crore. This is around 21 per cent less than the Rs 92 crore proposed by the bank for the same property during the first auction in June 2013.

The Indian Express has copies of the advertisements issued by Andhra Bank in 2013 and 2015.

Five other properties of Deccan Chronicle, in Chennai, Rajamundry, Vishakhapatnam and Vijaywada, worth Rs 133.47 crore, which were put up for auction by Canara Bank in 2013, have remained unsold, said a Canara Bank official.

According to V R P Raman, head of Abraham Enforcement and Recovery Services Pvt Ltd, the banks were forced to reduce the price of the Deccan Chronicle property because there are no takers. “The banks are really hoping to sell the property this time,” says Raman, whose firm acts an a recovery agent for 26 public sector banks.

Raman adds that attached properties of at least 75 companies worth Rs 2,500 crore have remained unsold, and that’s just counting the assignments handled by Abraham Enforcement and Recovery Services. “The overall amount of seized assets will be in the range of tens of thousands of crores,” said Raman.

About Zoom Developers, which is also handled by Raman, he said banks have attached properties worth around Rs 85 crore but managed to sell only one property for Rs 11 crore.

P K Malhotra, deputy managing director of the stressed assets division at State Bank of India, admits that poor economic activity has hindered the sale of industrial properties of big loan defaulters. “Sometimes there are no bidders. So instead of sporadic auctions, SBI has decided to conduct only mega auctions in the second week of the last month of every quarter,” said Malhotra.

To sweeten the deal for buyers, SBI is planning to include details of infrastructure in and around a seized property put up for auction.
Another senior banker who did not want to be named says buyers are not willing to shell out money even though banks have reduced the asking price by 10 per cent in each subsequent auction of the same property.

However, as the banker pointed out, “discounts can be given till a point. Otherwise we will be accused of selling the property cheap by the defaulting borrower”.

There are other hurdles too. For instance, in the case of big units which have defaulted on loan repayment, a consortium of banks is involved and a decision to sell the seized assets needs to be approved by it, which takes time. In the absence of a clear bankruptcy law, it is usual for borrowers to get a stay on the sale. In this year’s budget, the government announced that it would introduce a modern bankruptcy law.

Then again, banks sell these properties on a “as is where is and whatever is basis”, which means that the buyer has to deal with problems such as encroachers or getting an approval from the state industrial corporation.

“The problem with Zoom’s Mumbai and Indore properties is that they are encroached,” said Raman of Abraham Enforcement and Recovery Services. “Similarly another property of Zoom in Mumbai is a building which has been given on rent and the tenants have moved the DRT (Debt Recovery Tribunal) and obtained a stay on the sale of the building.”

Another recovery agent who didn’t want to be named says another big problem in buying land auctioned by banks is that there are no cash transactions. “There is no scope of using black money,” he said.

1.  Seized assets of at least five big defaulters have had no takers for a year.

2. Buyers stay away despite price cut by 10 pc in each subsequent auction.

3. In March 2015, outstanding bad loans amounted to around Rs 3 lakh crore.

4. Restructured assets of banks are now close to Rs 4 lakh crore.

5. Loan growth in past year was at a multi-year low at below 10 per cent.

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