Lenders are demanding complete cash payments through ARC sales to try and ensure their provisioning burden does not go up
Banks are willing to take fairly large haircuts as lenders are in rush to make recoveries ahead of the close of the financial year 2018-19, according to a report by The Financial Express, quoting executives at asset reconstruction companies (ARCs).
Central Bank of India's reserve price for Alok Industries suggests an 84 percent haircut and IDBI Bank's reserve price for Reliance Communications (RCom) implies a 55.5 percent haircut.
According to the report, lenders are demanding cash payments through ARC sales to try and ensure their provisioning burden does not rise. "We are settling National Company Law Tribunal-related (NCLT) exposures lower in cases where we get cash," an executive with a mid-sized public sector bank (PSB) told the newspaper.
The bank is making it clear to buyers that they want cash in 60 days, the executive added. A cash deal often means taking a bigger haircut.
Lenders have put up bad loan accounts worth over Rs 27,000 crore for sale in the March quarter. Deal-making today is happening at a much faster pace compared to even 12 months ago, a senior executive with an ARC said.
"Banks that have gone through the NCLT process have at times received only 60 percent of what we were offering because they preferred cash," the executive explained.
Delays in resolution through the Insolvency & Bankruptcy Code (IBC) route may have also forced lenders to take this route, as per sector watchers.
Large exposures that have been put on the block include Bank of Baroda (BoB) and IDBI Bank’s exposures to RCom — Rs 1,838 crore and Rs 1,056 crore, respectively. Also, on the block are exposures worth Rs 4,438 crore of Bhushan Power & Steel and Alok Industries to Central Bank of India and United Bank of India. Both assets were named on the Reserve Bank of India's (RBI) first list of large non-performing assets (NPAs).
If State Bank of India (SBI) had decided to go ahead with the sale of its Rs 15,431-crore exposure to Essar Steel, the value of NPAs put on the block would have been much higher. The bank is said to have shelved its planned sale of the account as it was not satisfied with the sole bid it received. Central Bank of India has also put up for sale its Rs 424-crore exposure to the steel firm.
According to the report, micro, small and medium enterprises (MSME) loans are also being offered for sale to ARCs. About Rs 8,453 crore of loans given to individuals or small and medium enterprises are put up for sale by SBI. United Bank of India, too, is selling retail NPAs worth Rs 115 crore in addition to the corporate NPA tranche of Rs 4,405 crore.
