Banks try to clean books through settlements, NPA sales
With the financial year coming to a close, commercial banks have hastened work on sprucing the health of balance sheets.
Many banks have floated one-time settlement (OTS) schemes for small and medium enterprises and tring to sell non-performing assets (NPAs).
State Bank of India, Corporation Bank, Karnataka Bank and Karur Vysya Bank have already floated an OTS each. Many others are in the process of doing so.
Bankers said while such efforts (OTS and NPA sale) are regular activity, the financial crisis and the recent regulatory fiat for increasing the provision coverage ratio are also driving them. The global financial crisis put a strain on corporate, small enterprises and retail borrowers, leading to substantial addition to gross NPAs. Plus, the Reserve Bank of India mandated banks to attain a 70 per cent loan loss coverage ratio by September 2010.
SBI chairman O P Bhatt said the bank would offer a settlement for bad loans to provide relief to small firms hit by the financial crisis. "We have got a large number of units which are stressed...We are trying to incentivise them with a one-time settlement," Bhatt said.
Karnataka Bank chief executive Jayarama Bhat said his bank did not intent to sell NPAs, but had floated a one-time settlement scheme from which it expects to recover substantial amounts. This would also help to reduce outstanding NPAs. Its gross NPAs rose to Rs 612.3 crore (4.5 per cent) in December 2009 from Rs 451.2 crore (3.7 per cent) a year earlier.
Chennai-based Indian Overseas Bank has commenced sale of NPAs for Rs 954 crore, involving 61 accounts. Its gross NPAs rose in the 12 months ended December 2009 to Rs 3,218.3 crore as against Rs 1,718.1 crore in December 2008.
IOB executive director Y L Madan said the due diligence by prospective buyers is through and bank hopes to strike a deal soon. It would help to manage provision coverage.
Similarly, Federal Bank is in the market for sale of assets of about Rs 80 crore. Its chairman M Venugopalan said, thebank was trying to sell some NPAs, “but is not in a hurry. It wants to get better value for assets put on the block”. The outstanding gross NPAs of the Kerala-based private bank stood at Rs 790.7 crore at the end of December 2009, up from Rs 625.7 crore a year earlier.
A Mumbai-based asset reconstruction company said many banks were in the market for a sale of NPAs, but there was a gap between what value banks expect and the price ARCs are ready to offer. Banks prefer cash deals, since the payments are immediate, which add to the revenues for the year, as against securities which could take time to realise gains, based on resolution of NPAs. An SBI official said his bank would not resort to large-scale sale of bad loans. Instead, it would do continuous follow-up with borrowers to ensure better recovery than the income that could be earned by offloading bad loans to other parties.
SBI, the country’s largest lender, saw a significant rise in its gross NPAs to Rs 18,861 crore at the end of December 2009 from Rs 12,723 crore a year earlier.
Many banks have floated one-time settlement (OTS) schemes for small and medium enterprises and tring to sell non-performing assets (NPAs).
State Bank of India, Corporation Bank, Karnataka Bank and Karur Vysya Bank have already floated an OTS each. Many others are in the process of doing so.
Bankers said while such efforts (OTS and NPA sale) are regular activity, the financial crisis and the recent regulatory fiat for increasing the provision coverage ratio are also driving them. The global financial crisis put a strain on corporate, small enterprises and retail borrowers, leading to substantial addition to gross NPAs. Plus, the Reserve Bank of India mandated banks to attain a 70 per cent loan loss coverage ratio by September 2010.
SBI chairman O P Bhatt said the bank would offer a settlement for bad loans to provide relief to small firms hit by the financial crisis. "We have got a large number of units which are stressed...We are trying to incentivise them with a one-time settlement," Bhatt said.
Karnataka Bank chief executive Jayarama Bhat said his bank did not intent to sell NPAs, but had floated a one-time settlement scheme from which it expects to recover substantial amounts. This would also help to reduce outstanding NPAs. Its gross NPAs rose to Rs 612.3 crore (4.5 per cent) in December 2009 from Rs 451.2 crore (3.7 per cent) a year earlier.
Chennai-based Indian Overseas Bank has commenced sale of NPAs for Rs 954 crore, involving 61 accounts. Its gross NPAs rose in the 12 months ended December 2009 to Rs 3,218.3 crore as against Rs 1,718.1 crore in December 2008.
IOB executive director Y L Madan said the due diligence by prospective buyers is through and bank hopes to strike a deal soon. It would help to manage provision coverage.
Similarly, Federal Bank is in the market for sale of assets of about Rs 80 crore. Its chairman M Venugopalan said, thebank was trying to sell some NPAs, “but is not in a hurry. It wants to get better value for assets put on the block”. The outstanding gross NPAs of the Kerala-based private bank stood at Rs 790.7 crore at the end of December 2009, up from Rs 625.7 crore a year earlier.
A Mumbai-based asset reconstruction company said many banks were in the market for a sale of NPAs, but there was a gap between what value banks expect and the price ARCs are ready to offer. Banks prefer cash deals, since the payments are immediate, which add to the revenues for the year, as against securities which could take time to realise gains, based on resolution of NPAs. An SBI official said his bank would not resort to large-scale sale of bad loans. Instead, it would do continuous follow-up with borrowers to ensure better recovery than the income that could be earned by offloading bad loans to other parties.
SBI, the country’s largest lender, saw a significant rise in its gross NPAs to Rs 18,861 crore at the end of December 2009 from Rs 12,723 crore a year earlier.
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