Cash recovery: Banks open to big haircuts as they rush to sell bad loans before March-end

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New Delhi | Updated: March 12, 2019 7:06:18 AM

Both assets were named on the Reserve Bank of India's (RBI) first list of large non-performing assets (NPAs).

bank, banking sector, hsbcBanks are demanding 100% cash payments through ARC sales to try and ensure their provisioning burden does not go up.


Bad-loan accounts put up for sale by banks so far in the March quarter have risen to over Rs 27,000 crore as lenders rush to make cash recoveries ahead of the close of the financial year 2018-19. In their anxiety to close out deals, they have been willing to take fairly large haircuts, executives at asset reconstruction companies (ARCs) said. For instance, Central Bank’s reserve price for Alok Industries suggests an 84% haircut and IDBI’s reserve price for RCom implies a 55.5% haircut.

Banks are demanding 100% cash payments through ARC sales to try and ensure their provisioning burden does not go up. “We are selling NCLT exposures in cases where we get cash ,” an executive with a mid-sized public-sector bank (PSB) said. “We are making it clear to buyers that we want the cash in 60 days,”he added.

However, a cash deal often means taking a bigger haircut. A senior executive with an ARC pointed out that compared to even 12 months ago, deal-making today was happening much faster.

“Banks that have gone through the NCLT process have at times got only 60% of what we were offering because they preferred cash,” he explained. Delays in resolution through the Insolvency and Bankruptcy Code (IBC) route may have also forced their hand, sector watchers point out.

Among the large exposures that have been put on the block are Bank of Baroda (BoB) and IDBI Bank’s exposures to RCom — Rs 1,838 crore and Rs 1,056 crore, respectively. The other large accounts which banks are trying to sell are those of Bhushan Power & Steel and Alok Industries. In March alone, Central Bank of India and United Bank of India have put on sale accounts worth a total Rs 7,777 crore, of which these two assets account for Rs 4,438 crore.

Both assets were named on the Reserve Bank of India’s (RBI) first list of large non-performing assets (NPAs). While the joint bid by Reliance Industries and JM Financial ARC to take over Alok Industries was approved by the National Company Law Tribunal (NCLT) only on Friday, resolution continues to elude the Bhushan Power account.

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The value of NPAs put on the block would have been much higher had State Bank of India (SBI) decided to go ahead with the sale of its Rs 15,431-crore exposure to Essar Steel. The country’s largest lender reportedly shelved its planned sale of the account as it was not satisfied with the sole bid it received. Central Bank has also put up for sale its `424-crore exposure to the steel firm. BoB had already exited Essar Steel in the September quarter of FY19.

Interestingly, pools of micro, small and medium enterprises (MSME) loans are also being offered for sale to ARCs. Of the `11,085-crore worth of assets on sale by SBI, Rs 8,453 crore of loans are to individuals or MSMEs. United Bank, too, is selling retail NPAs worth `115 crore in addition to the corporate NPA tranche of Rs 4,405 crore.

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