Banks review sale of loans under resolution to ARCs

Banks are rethinking plans to sell bad loans under resolution in bankruptcy courts to asset reconstruction companies (ARCs), three bankers aware of the matter after State Bank of India and Indian Banks’ Association expressed their displeasure. According to a Union Bank official, one of the three bankers cited earlier, the bank is looking to sell nearly Rs2,700 crore of domestic exposure in Bhushan Steel and Essar Steel Ltd before March-end.

The second of the three bankers, Bank was also looking to follow BoB’s example of selling their foreign exposure worth $300 million in Essar Steel to foreign funds. Recently, Indian Overseas Bank too had sold its exposure of Rs1,600 crore in Essar Steel and Rs600 crore in Bhushan Steel to Edelweiss Asset Reconstruction Co. Ltd and Assets Care and Reconstruction Enterprise Ltd, respectively.

We believe that any proposal to sell bad loans undergoing insolvency proceedings should be collectively decided by the Joint Lenders’ Forum (JLF). Since the asset is admitted to the National Company Law Tribunal (NCLT), the matter is sub-judice. Under the new PCA framework, breaching a net non-performing assets (NPA) ratio of 6% invites action, including limits on lending and expansion. As on 30 December, Union Bank of India’s net NPA ratio as a percentage of total advances stood at 6.96%, Bank of Baroda at 4.97% and IDBI at 16.02%.

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