With bad debt recovery slowing down, 16 banks, especially the government-owned ones, have put around Rs. 1.16 crore of corporate loans on sale to asset reconstruction companies (ARC).
The inability to recover the bad loans either through in-house resources or mechanisms such as Debt Recovery Tribunal (DRT) or Insolvency and Bankruptcy Code 2016 have forced the banks to take this route. The banks are planning to clean their balance sheet before the end of the running financial year. The delays in resolutions, with the setting up of IBC by Modi government, is the major reason why banks are selling non-performing assets (NPAs).
The country's largest bank, State Bank of India, put up its Rs 15,000 crore worth of loans to Essar Steel on sale last week. SBI took a 15 percent haircut, 500 days after it took the bad debt to the National Company Law Tribunal (NCTL) as a lead banker. SBI Chairman, Rajnish Kumar, said that "There is a cost to money. If I sell off the loan, even at a discount, the bank gets Rs 9,500 crore to lend. As the loans age, the provisions also go up. It is not prudent to lock up so much capital." In total, the SBI has put 62 accounts on the sale of worth in the auction process.
Daily News and Analysis reported that due to the pile of bad loans, the banks are asking for upfront cash which is a major issue the ARCs are trying to reconcile as the prices the banks are expecting are not attractive enough them.
Moreover, the interest shown by the foreign banks like Deutsche Bank and Bank of America, hedge funds and foreign distressed funds to acquire assets, especially by bidding at the National Company Law Tribunal (NCLT), is putting up additional pressure on the banks to immediately sell their bad loans.
Many PSBs including Bank of India, Dena Bank and Punjab National Bank are aggressively selling their bad loan to clean up their balance sheet. The snail-paced insolvency process has been major irritants for the banks, with only three of 12 big default cases flagged by the RBI have been resolved by under IBC which include Bhushan Steel, Monnet Ispat & Energy, Binani Cement and Electrosteel Steels