Mumbai: State Bank of India (SBI) has initiated the process of selling Rs1,580 crore of bad loans to financial institutions, including asset reconstruction companies (ARCs).
The bank has put on block 11 non-performing assets (NPA) for sale through a bidding process, according to a tender on the bank’s website.
“Right now, interested parties are conducting due diligence. Once that is completed, the bidding process will take place later this month,” a person in the know said on condition of anonymity. Last month, the country’s largest lender put Rs3,554 crore of bad loans up for sale. In that auction, it received bids only for a portion of the total; SBI is awaiting final approvals to go ahead with the sale, said a second person, who also requested anonymity.
In the first half of fiscal 2018, the bank managed to sell Rs763 crore of bad loans to ARCs.
“ARC sale has not been significant in these (first) two quarters. I think now, with the insolvency and bankruptcy code in the picture, the whole strategy, particularly around corporate cases, more and more probably get referred to the NCLT (National Company Law Tribunal),” SBI chairman Rajnish Kumar said in an earnings call on 10 November. “But any large or mid-sized corporate, we believe we will be able to handle it better than ARC.”
Kumar said SBI sells assets only when it is able to get an intended price.
According to experts, most banks are seeking all-cash deals or those with higher cash component in case of a sale to ARCs. This is because from the beginning of this fiscal, if a bank invests in more than 50% of security receipts created against the sale of its own stressed assets, it has to set aside more money as provision. From 2018-19, this threshold of 50% will be reduced to 10%.
Given the thin capital level of ARCs, and their greater focus on turnaround of accounts, including those under NCLT, most NPA sale deals are stuck under the 15:85 rule. Here, ARCs pay 15% of the net asset value as upfront cash and issue security receipts to cover the rest of the amount.