MUMBAI: Stressed assets may be mounting on banks’ books, but they are in no mood to sell them, thanks to rising optimism that the worst may be behind and the economic growth tide could lift some of these bad assets too.
In the first quarter of this fiscal, banks managed to sell less than a 50th of what they put up for sale, data from the Asset Reconstruction Companies and banks show. Given the rising economic activity, banks believe the price at which ARCs were willing to buy those stressed assets may not be worth selling.
With the performance of many ARCs below average, banks have also built up their own teams which are better equipped to handle the recovery either through part or full sale of those loans, said bankers.
“Banks are taking stock of the situation to find out whether they want to deal with these bad accounts on their own or sell it to ARCs or other institutional buyers,” Birendra Kumar, MD, IARC, told ET. “With newer players coming, banks may prefer a cash approach instead of selling assets on security receipts.”
Of the Rs 10,000 crore of loans up for sale, less than Rs 200 crore were sold, bankers said. A large part of these assets were put up for sale by Indian Overseas Bank, Andhra Bank, State Bank of India and Punjab National Bank. In Q4FY16, banks sold Rs 5,000 crore of bad loans to reconstruction companies.
Banks and ARCs have been at the blame game for a long time citing the non-agreement over the price at which they sell. Moreover, the regulatory increase in the proportion of capital that ARCs have to put up to buy a bad loan may have also slowed transactions. Despite the fact that ARCs have been around for more than a decade, they haven’t been of much help with even the RBI deputy governor SS Mundra terming them “demolition” agents.
“We have got a reasonably large team who is focused on recovery and resolution which we believe they are capable of handling it,” V Srinivasan, DMD, Axis Bank, told ET. “Unless we believe some of these assets need skills which possibly we don’t have, then we need to approach them otherwise there is no reason to sell to ARCs.”
Most big banks which have reported earnings so far including HDFC Bank, Axis Bank, Kotak Mahindra Bank and Canara Bank have not sold any bad loan to reconstruction companies in Q1FY17.