2 June 2020: An estimated Rs 20,000 crore worth of bad loans from state-run banks are up for sale to asset reconstruction companies as banks prepare for a fire sale due to suspension of the bankruptcy law which has blurred the recovery horizon, said bankers familiar with the development. Many banks are looking to sell large exposures to Reliance Communications, Reliance Naval, Videocon Industries, and Amtek Auto that have been a drag for more than two years, they said asking not to be identified.
Banks are looking to sell these loans to avoid higher provisioning requirements on NCLT accounts as resolution dates get longer due to the government’s decision to suspend the bankruptcy law. These banks are yet to come out with a formal list of loans on sale as back channel talks with asset reconstruction companies are ongoing.
“We are talking to ARCs regarding some of our large exposures, depending on the feedback and interest for these loans we will prepare a final list of bad loans on sale,” said a PSU banker. Finance minister Nirmala Sitharaman last month suspended the application of bankruptcy law for any defaults associated with Covid-19 inflicted pain. The Reserve Bank of India has provided a six-month repayment moratorium, in two stages, that is available till August 31.
Another CEO said that with Covid set to increase their NPA burden, they were looking at selling past bad loans to avoid higher provisioning. “We have made adequate provisions for these loans, depending on the response from ARCs we hope we can take write-back provisions in the upcoming quarters,” he said. In the past too, several banks have sold defaulter loans such as Essar Steel and Bhushan Power and Steel due to delays in bankruptcy proceedings. Axis BankNSE -1.18 % too put up loans worth Rs 435 crore on the block, a big chunk of which was to small and medium enterprises.
Indian banks have been saddled with bad loans of over Rs 9 lakh crore, nearly 9.5% of the banking system loans. This is estimated to rise to 11.5% due to shutdown of businesses. The Covid-19 pandemic has also worsened the backlog of cases at bankruptcy tribunals across the country. At the end of March, the National Company Law Tribunal had admitted 3,774 companies to be tried under the bankruptcy law. Of them, 738 cases had exceeded the 270-day resolution timeline while another 494 cases were being heard for more than 180 days.
Source: The Economic Times