Small companies give PSU banks most bad loans
Psu banks have put bad loans worth around Rs 6,500 crore on auction for bidding by asset reconstruction companies (ARCs).
As per data available up to March 11, the bulk of the non-performing assets arose from loans given to mid-sized companies and small and medium scale enterprises (SMEs).
Retail loans such as home loans, credit card dues and personal loan are also being sold but these are offloaded through bilateral deals between banks and ARCs.
“So far only Rs 1,800 crore worth of loans were bought by ARCs as there was a disagreement on the price. Banks were unwilling to give the kind of discounts demanded by ARCs. Moreover the auctions got bunched up towards the fag end of the financial year when resources with ARCs were limited,” said the CEO of leading ARC who did not want to be named.
It was the smaller public sector banks that had put large portfolios on sale. Central Bank of India put on auction Rs 655 crore of NPAs, while Indian Overseas Bank tried to offloaded about Rs 400 crore. The State Bank of India (SBI) put on sale about Rs 649 crore of large and mid-sized corporate loans that had gone bad.
M Narendran, CMD of IOB, said, “The bad loans are from the backlog of the past few years when there was a slowdown. Our bad loans are gradually coming down.”
Bankers complain that ARCs are demanding steep discounts, which is acting as a deterrent. The loans are sold only if banks can write back some profits into their books. “Many of the loans SBI brought to the auction are corporate loans. Our SME portfolio has been relatively good. Steel, textile and cement firms were under some strain and we had to put some loans on sale,” said an SBI official.
Many ARCS were also converting debt into equity of portfolios they purchase. But RBI recently directed them to desist from converting such loans into equity.
ARCS buy the bad loans at a discount to the book value and try to recover it from borrowers. It is expensive for banks to try and retrieve these loans. Banks sell these loans at a discount and write back the revenue generated into their profits.
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