Banks put Rs 21k-cr NPAs on block in 3 months-Business Standard
Rush to offload bad loans indicates a revival in asset-sale market
Eighteen lenders, both state-run and private ones, have put Rs 21,060 crore worth of bad loans on the block in the first quarter of the financial year, indicating a revival in the asset-sale market.
The country's largest bank, State Bank of India (SBI), has identified Rs 4,288 crore of non-performing assets (NPAs) to be sold to asset reconstruction companies (ARCs), while Central Bank of India will sell Rs 3,047 crore and Bank of India Rs 2,492 crore worth of NPAs.
Apart from 15 public-sector lenders, private banks like ICICI Bank and Karur Vysya Bank are also planning to offload some of their bad loans to ARCs, though the value of the NPAs they are selling is much less than their public-sector peers.
Indian Overseas Bank (IOB) Chairman & Managing Director M Narendra says, in some cases, there is a unanimous view among consortium members on NPA sale. "So offloading accounts to ARCs early in the year can increase chances for resolution management assistance, as well as financial support. There also is a new regime for detection and resolution of stressed cases by the Reserve Bank of India (RBI) which is making banks decide early." The Chennai-based lender has identified Rs 814 crore of NPAs for sale.
Possibly, this is after many years that NPA sale is being contemplated in the very first quarter of a financial year. Banks typically sell bad loans in the last quarter. However, since all banks rush to sell in the fourth quarter and are keen to complete the deals by March 31, there are chances they do not get the right price. Selling at the beginning of a year increases the possibility of fetching a good price.
Indian Bank's Association Chief Executive Officer Mohan Tanksale says many banks, after exhausting all avenues for recovery and making provisions for bad loans, are now clear that it is best to start early. "It is a calculated step and better than making a last-ditch effort at the end of a financial year. Both the seller (banks) and ARCs get more time to arrive at a fair value for assets."
The country's largest bank, State Bank of India (SBI), has identified Rs 4,288 crore of non-performing assets (NPAs) to be sold to asset reconstruction companies (ARCs), while Central Bank of India will sell Rs 3,047 crore and Bank of India Rs 2,492 crore worth of NPAs.
Apart from 15 public-sector lenders, private banks like ICICI Bank and Karur Vysya Bank are also planning to offload some of their bad loans to ARCs, though the value of the NPAs they are selling is much less than their public-sector peers.
Indian Overseas Bank (IOB) Chairman & Managing Director M Narendra says, in some cases, there is a unanimous view among consortium members on NPA sale. "So offloading accounts to ARCs early in the year can increase chances for resolution management assistance, as well as financial support. There also is a new regime for detection and resolution of stressed cases by the Reserve Bank of India (RBI) which is making banks decide early." The Chennai-based lender has identified Rs 814 crore of NPAs for sale.
Possibly, this is after many years that NPA sale is being contemplated in the very first quarter of a financial year. Banks typically sell bad loans in the last quarter. However, since all banks rush to sell in the fourth quarter and are keen to complete the deals by March 31, there are chances they do not get the right price. Selling at the beginning of a year increases the possibility of fetching a good price.
Indian Bank's Association Chief Executive Officer Mohan Tanksale says many banks, after exhausting all avenues for recovery and making provisions for bad loans, are now clear that it is best to start early. "It is a calculated step and better than making a last-ditch effort at the end of a financial year. Both the seller (banks) and ARCs get more time to arrive at a fair value for assets."
Last year, SBI had sold about Rs 3,000 crore of NPAs - a significant part of that went for security receipts and some smaller accounts were sold for cash. Banks have to make marked-to-market provisions for security receipts if the amount is not realised within three years.
The stressed-asset market, where deals were few and far between in the past three-four years, got a boost after the (RBI) relaxed the norms to help banks bring down NPAs.
The central bank allowed banks to reverse the excess provision on sale of NPAs if the sale was for a value higher than the net book value to P&L account in the year the amounts were received. Further, as an incentive for early NPA sale, banks were allowed to spread any shortfall (that is, if the sale value is lower than the net book value) over a period of two years.
"Sale of assets to ARCs, at a stage when these have good chance of revival and fair amount of realisable value for rehabilitation and reconstruction, is encouraged," the central bank had said in March in its revised guidelines permitting banks to sell standard assets as well. Until last year, lenders were allowed to sell only non-performing assets; the revised guidelines came into effect from this financial year.
With the economy stuck in the slow-growth lane for two years, the stress in the system has only multiplied and hit banks' asset quality. According to rating agency Icra, public-sector banks' gross NPAs grew to 4.4 per cent as on March 31 this year from 3.6 per cent last year. The agency expects these to remain between 4.4 per cent and 4.7 per cent at the end of March 2015.
The stressed-asset market, where deals were few and far between in the past three-four years, got a boost after the (RBI) relaxed the norms to help banks bring down NPAs.
The central bank allowed banks to reverse the excess provision on sale of NPAs if the sale was for a value higher than the net book value to P&L account in the year the amounts were received. Further, as an incentive for early NPA sale, banks were allowed to spread any shortfall (that is, if the sale value is lower than the net book value) over a period of two years.
"Sale of assets to ARCs, at a stage when these have good chance of revival and fair amount of realisable value for rehabilitation and reconstruction, is encouraged," the central bank had said in March in its revised guidelines permitting banks to sell standard assets as well. Until last year, lenders were allowed to sell only non-performing assets; the revised guidelines came into effect from this financial year.
With the economy stuck in the slow-growth lane for two years, the stress in the system has only multiplied and hit banks' asset quality. According to rating agency Icra, public-sector banks' gross NPAs grew to 4.4 per cent as on March 31 this year from 3.6 per cent last year. The agency expects these to remain between 4.4 per cent and 4.7 per cent at the end of March 2015.
http://www.business-standard.com/article/finance/banks-put-rs-21k-cr-npas-on-block-in-3-months-114062300033_1.html
Sharp rise in NPA sales to ARCs under lens-Business Standard
ARCs have also raised their acquisition price to 60-plus per cent of book value, compared with 25 per cent historically
A sharp rise in sales of bad loans by banks to asset reconstruction companies (ARCs) has made the Reserve Bank of India put under its scanner the practices adopted by both.
The regulator suspects banks could be using the option of issuing securities receipts (SRs) to ARCs to evergreen their balance sheets. There is a spurt in the activities of ARCs, driven by banks' efforts on the latter. It calls for a closer look at the extant arrangements between ARCs and banks, RBIsaid in its financial stability report, issued on Thursday.
Foreign brokerage Credit Suisse, in its report on asset sales, said sales of non-performing loans to ARCs jumped to Rs 27,000 crore in 2013-14 from Rs 8,000 crore in FY13, and are likely to double further in FY15. However, these are being done primarily without the transfer of risk, as banks continue to hold over 90 per cent of the SRs.
ARCs have also raised their acquisition price to 60-plus per cent of book value, compared with 25 per cent historically. With ARCs earnings 1.5-2 per cent fee on the assets under management, they have been willing to incur the 5-10 per cent initial cash outflow on the inflated asset value, the brokerage said.
The share of public sector banks in the total amount of assets sold to ARCs reflects the acute stress on PSBs' asset quality and the need for prompt action, says RBI.
Most of the securitisation is happening through issuance of SRs, rather than cash. SRs might not carry the stigma of non-performing assets. Their value is mainly being derived from the collateral and not based on the record of recovery. The risk of loss of income on the asset still remains, in effect, with the originator, i.e the bank.
Any incremental value addition of ARCs in 'reconstruction' of assets, over banks' traditional skills and informational advantage needs to be assessed. Commercial banks have a significant stake in most of the ARCs operating in India and the spread of risks might not be taking place effectively, RBI added.
The regulator suspects banks could be using the option of issuing securities receipts (SRs) to ARCs to evergreen their balance sheets. There is a spurt in the activities of ARCs, driven by banks' efforts on the latter. It calls for a closer look at the extant arrangements between ARCs and banks, RBIsaid in its financial stability report, issued on Thursday.
Foreign brokerage Credit Suisse, in its report on asset sales, said sales of non-performing loans to ARCs jumped to Rs 27,000 crore in 2013-14 from Rs 8,000 crore in FY13, and are likely to double further in FY15. However, these are being done primarily without the transfer of risk, as banks continue to hold over 90 per cent of the SRs.
ARCs have also raised their acquisition price to 60-plus per cent of book value, compared with 25 per cent historically. With ARCs earnings 1.5-2 per cent fee on the assets under management, they have been willing to incur the 5-10 per cent initial cash outflow on the inflated asset value, the brokerage said.
The share of public sector banks in the total amount of assets sold to ARCs reflects the acute stress on PSBs' asset quality and the need for prompt action, says RBI.
Most of the securitisation is happening through issuance of SRs, rather than cash. SRs might not carry the stigma of non-performing assets. Their value is mainly being derived from the collateral and not based on the record of recovery. The risk of loss of income on the asset still remains, in effect, with the originator, i.e the bank.
Any incremental value addition of ARCs in 'reconstruction' of assets, over banks' traditional skills and informational advantage needs to be assessed. Commercial banks have a significant stake in most of the ARCs operating in India and the spread of risks might not be taking place effectively, RBI added.
http://www.business-standard.com/article/finance/sharp-rise-in-npa-sales-to-arcs-under-lens-114062700094_1.html
Banks rush to dump their bad loans, make a beeline to ARCs-Economic times
MUMBAI: Lenders to Hotel Leela Venture and Bharati Shipyard have offloaded to asset reconstruction companies (ARCs) the loans that turned bad last year, a move which signifies that the banks are in a hurry to clean up their books instead of waiting to recover their dues through a long-winded legal procedure.
In two separate deals, banks led by the State Bank of India have agreed to sell the Rs 4,300 crore loan of Hotel Leela Venture to JM Finanical ARC and Rs 8,000 crore outstanding loan of Bharati Shipyard to Edelweiss ARC.
Two bank officials who confirmed these deals said the lenders for the first time jointly decided to sell loans as a single block to a single ARC. "All lenders unanimously agreed to sell the loan at a cut-off price decided by the lead bank, the State Bank of India," said a bank official, who did not wish to be identified.
Siby Antony, managing director and chief executive of Edelweiss ARC, said, "It is not our policy to give any information about specific cases." Officials of JM Financial ARC did not respond to an e-mail query by ET.
Significantly, for the first time, the loans extended to Hotel Leela Venture were sold at a price higher than the outstanding loans. In the past, lenders have had to take a haircut of 50-95% of the outstanding amount while selling the bad loan to ARCs. Lenders including Life Insurance Corporation of India have extended a loan of Rs 4,000 crore to Hotel Leela Venture, against the bid of Rs 4,300 crore, executives familiar with the matter said.
About 5% of the amount will be paid in cash while the remaining sum, in the form of security receipts which would be paid over a period of time, will be linked to recovery of the dues by the ARCs. Bharati Shipyard, which was struggling to receive lenders' consent to restructure its loan under the corporate debt restructuring (CDR) route, was sold at a little less than Rs 3,000 crore, including a combination of cash and security receipts.
The loan given to Hotel Leela Venture turned bad after the borrower failed to infuse Rs 2,000 crore into the business - a precondition laid by the lenders when they restructured the loan about two years ago. In recent months, promoters of Leela Venture were in negotiation for Rs 2,000 crore mezzanine loan from private equity firm KKR that would have involved mortgaging two of its properties in Chennai and Delhi for the amount. However, as the loan turned bad, and the lenders decided to offload it.
KKR had made a joint bid with an ARC firm to acquire the loans of Leela, but JM Financial ARC made a better offer, a person privy to the details said. Increasing stress on the loan book has been worrying bankers as it eats into their profits and limits their ability to expand the loan book. As a result, a number of banks are selling stressed loans to ARCs.
Data released by the Reserve Bank of India show that for commercial banks, gross non-performing assets (NPA) - bad loans before making provisions - stood at 4% of total advances in March compared with 3.4% in the yearago period. According to Icra, NPAs were the highest for public sector banks, at Rs 2,27,300 crore in March, against Rs 1,64,500 crore a year ago.
http://articles.economictimes.indiatimes.com/2014-06-30/news/50974290_1_arcs-loan-bharati-shipyard
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