CG: TREND: Rush by banks to sell 715 bln rupees of NPAs before FY19 ends

15 March 2019: Nearly 715 bln rupees of bad loans have been put on the block by 16 state-owned banks and IDBI Bank, as they look to clean up their balance sheets before the current financial year ends on Mar 31.

The move is aimed at freeing up capital for lending in 2019-20 (Apr-Mar).

State Bank of India, Oriental Bank of Commerce, Dena Bank, Bank of Baroda, Andhra Bank, United Bank of India, among others, have offered to sell around 45,000 non-performing loan accounts to asset reconstruction companies, banks, non-banking finance companies and financial institutions.

In the Oct-Dec quarter, 11 state-owned lenders had put up 592 loan accounts with an outstanding of 440.13 bln rupees for sale, according to data complied by Cogencis.

Banks have been plagued by bad loans ever since Oct-Dec 2015, when Reserve Bank of India first conducted a system-wide Asset Quality Review. This led to 11 state-owned banks and one private sector bank being placed under prompt corrective action framework due to reporting losses, rise in bad loan ratios, and erosion of capital.

Even the time-bound resolution framework of the Insolvency & Bankruptcy Code has seen delays, which has led banks to look to offload even assets close to resolution, as they are still not certain on recovery timeline.

“Time value of money” was the reason cited by State Bank of India Chairman Rajnish Kumar when asked why the Essar Steel loan of 154 bln rupees was offered for sale, even as resolution looked to be around the corner. But, weak demand for the large value asset and subsequent favourable ruling for ArcelorMittal taking over the company, has led SBI to abandon the plan to sell this loan.

The attempt to sell Essar Steel loan made SBI the biggest seller in the bad loan sale space this quarter, with 1,187 accounts with an outstanding of 303.1 bln rupees offered for auction. This meant that SBI offered 42.4% of the 715 bln rupees that were placed for sale by all banks.

Bank of Baroda followed with loans to the tune of 95.56 bln rupees being on the block while Andhra Bank offered to sell loans accounts worth 76.34 bln rupees.

Reliance Communications, Alok Industries, Bhushan Power and Steel, Jayaswal Neco Industries and Jai Balaji Industries were the other cases with the National Company and Law Tribunal that banks looked to sell. These companies were part of the two lists of the central bank where banks were asked to file insolvency cases.

Bank of Maharashtra offered a whole portfolio of education and micro, small and medium enterprises loans for sale, which covered a large number of accounts at 42,790, although the total quantum was comparatively lower at 4.75 bln rupees.

Data compiled by Cogencis shows that banks were more aggressive in selling the bad loans in the Jan-Feb period than in March, as the lenders traditionally look to close out sales early in March itself. The March tenders run the risk of the deals spilling over into April, defeating the purpose of looking to clean up the March-end financials.

State-owned banks have to find internal sources for capital to begin fresh lending, as the government has not budgeted any capital infusion in 2019-20. Apart from sale of non-core assets or raising capital from the market, finding buyers for bad loans is an option that will help them begin the next financial year with a clean slate.

Following are the list of accounts and loans that has been offered for sale by banks in Jan-Mar:

Banks January February March
Amount in bln rupees Number of accounts Amount in bln rupees Number of accounts Amount in bln rupees Number of accounts
Allahabad Bank 5.81 41
Andhra bank 32.41 71 43.93 72
Bank of Baroda 33.12 15 59.28 49 3.16 14
Bank of India 2.06 1
Bank of Maharashtra 3.3 9 4.75 42790
Central Bank of India 3.54 2 33.69 5
Dena Bank 27.84 148 12.584 77 0.59 1
Indian Bank 7.63 55
Indian Overseas Bank 2.51 3
IDBI Bank 13.52 6
Oriental Bank of Commerce 6.36 14 8.163 19 2.86 2
Punjab National Bank 11.83 11 2 1
State Bank of India 190.5 203 60.08 771 52.48 213
Union Bank of India 20.21 24
United Bank of India 25.9 57 44.05 60
Punjab and Sindh Bank 1.15 1
Vijaya Bank 0.89 1
Total 261.36 382 249.707 1187 203.09 43165

Cogencis reported

Categories: General News, India Bankruptcy

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