MUMBAI: Indian banks seem to be on a clean up spree before the financial year ends on March 31. Nearly Rs 715 billion of bad loans have been put on the block by 16 state-owned banks and IDBI Bank, as they look to clean up their balance sheets. The move is aimed at freeing up capital for lending in FY 2019-20.
State Bank of India, Oriental Bank of Commerce, Dena Bank, Bank of Baroda, Andhra Bank, United Bank of India, among others, have offered to sell around 45,000 non-performing loan accounts to asset reconstruction companies, banks, non-banking finance companies and financial institutions. In the Oct-Dec quarter, 11 state-owned lenders had put up 592 loan accounts with an outstanding of Rs 440.13 billion for sale, according to data complied by Cogencis.
Banks have been plagued by bad loans ever since Oct-Dec 2015, when Reserve Bank of India first conducted a system-wide Asset Quality Review. This led to 11 state-owned banks and one private sector bank being placed under prompt corrective action framework due to reporting losses, rise in bad loan ratios, and erosion of capital.
Even the time-bound resolution framework of the Insolvency and Bankruptcy Code (IBC) has seen delays, which has led banks to look to offload even assets close to resolution, as they are still not certain on recovery timeline.
“Time value of money” was the reason cited by State Bank of India Chairman Rajnish Kumar when asked why the Essar Steel loan of 154 bln rupees was offered for sale, even as resolution looked to be around the corner. But, weak demand for the large value asset and subsequent favourable ruling for ArcelorMittal taking over the company, has led SBI to abandon the plan to sell this loan.
The attempt to sell Essar Steel loan made SBI the biggest seller in the bad loan sale space this quarter, with 1,187 accounts with an outstanding of Rs 303.1 billion offered for auction. This meant that SBI offered 42.4% of the Rs 715 billion that were placed for sale by all banks. Bank of Baroda followed with loans to the tune of Rs 95.56 billion being on the block while Andhra Bank offered to sell loans accounts worth Rs 76.34 bn.
Reliance Communications, Alok Industries, Bhushan Power and Steel, Jayaswal Neco Industries and Jai Balaji Industries were the other cases with the National Company and Law Tribunal that banks looked to sell. These companies were part of the two lists of the central bank where banks were asked to file insolvency cases.
Bank of Maharashtra offered a whole portfolio of education and micro, small and medium enterprises loans for sale, which covered a large number of accounts at 42,790, although the total quantum was comparatively lower at Rs 4.75 billion.
Data compiled by Cogencis shows that banks were more aggressive in selling the bad loans in the Jan-Feb period than in March, as the lenders traditionally look to close out sales early in March itself.
The March tenders run the risk of the deals spilling over into April, defeating the purpose of looking to clean up the March-end financials. State-owned banks have to find internal sources for capital to begin fresh lending, as the government has not budgeted any capital infusion in 2019-20.