Press "Enter" to skip to content

NPA resolution takes backseat at banks

Non-performing assets (NPA) auctioned by banks has dropped to a trickle this quarter (October-December) as bankers are not finding time for bad debt resolution.

Asset reconstruction companies (ARCs) that buy such assets say except for a few small cases nothing substantial has flown down from the banks at auctions as demonetization work is consuming energies of the bankers.

Siby Antony, managing director and chief executive officer at Edelweiss Asset Reconstruction Co, said, “The auctions have had very few loans coming this quarter. But we need to see the figures on December 29, the last day of the quarter, when we have another round of auctions. But it could not be a big sale. Bad loan sales have been lacklustre, but there may be a pick-up in the fourth quarter.”

Brokerage Jefferies said that loan repayments are due at the end of month and impact on collections should be clear in the next few weeks.

“RBI recently allowed 60-day relaxation on NPA recognition, but many borrowers have misinterpreted this as a moratorium on loan repayments. This has affected collections in several segments. There is some improvement in collections in rural and CV segments. Cheque collections have increased. As per our feedback, slippages in SME segment should rise with a lag in next few quarters as underlying business cash flows get stressed due to erosion of tax arbitrage,” it said in a note.

Another chief executive officer of an ARC said, “There have been very few sales and often no agreement on the prices. This quarter bankers were busy with demonetization, especially the public sector banks, where a lot of approvals are required, leading to poor shows at the auctions. At times auctions are cancelled as banks are uncertain about how much they want to put on the block.”

In six months to September, NPAs crossed Rs 7 lakh crore, with a few leading banks carrying a watch list of about Rs 75,000 crore of loans that may turn NPAs.

A senior executive of a public sector bank said, “As bad loans age, the provisions also climb, leading to pressure on margins. Even companies were unable to sell off their non-core assets as demonetization consumed all the productive capacities of banks.

Among the measures announced by RBI to help with debt resolution, the application of the 5:25 and S4A or the scheme for sustainable structuring of standard assets could become appealing. Banks are now allowed to cover more sectors under the former and to upgrade the sustainable portion of debt to standard assets using the latter.