IBA identifies 102 corporate bad loans totalling to Rs 2 lakh crore

The Indian Banks Association (IBA) has identified 102 corporate bad loans, totalling to Rs 2 lakh crore, where the amount outstanding in each is over Rs 500 crore. They include loans in a variety of industries.

According to ToI, these loans are almost fully provided for over the years and they exclude the ones where there is fraud involved or those currently under liquidation. Approval from 75% of the lenders by value is required to transfer the loans to an ARC. The IBA had proposed a public sector bad bank to take over bad loans of Indian lenders.

A senior banker said a bad bank is expected to be more efficient in recovery as it will step into the shoes of multiple lenders who currently have different compulsions when it comes to resolving a bad loan. “In the first phase, lenders are expected to approve the transfer of 30 to 40 loans by next week.” He told ToI that the framework for transferring the loans from the books of banks is already in place.

The NARC, once the lenders decide on selling the loan, will make them an offer based on the scope of recovery. With the NARC’s offer the lenders will hold a Swiss Challenge where rivals are allowed to better the offer made by a chosen bidder. The report says that while rival ARCs in the private sector will be given an option to bid, it is unlikely they will succeed. This is because security receipts issued by the NARC for 85% of the value of the loans would be guaranteed by the government.

The NARC would be paying up to 15% of the agreed value for loans in cash. It is also expected to do a good job in recovery as it will create a trust that will assign the task to an asset managment company.

SP Global, in a report released earlier this year, said an expected surge in bad loans in India’s banking sector, this year, could hit state-owned lenders harder than their more-nimble private-sector rivals. As such, they need to lean on government for more capital to support credit demand as the economy emerges from a pandemic-induced contraction.

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Nikita Anand, the associate director for credit risk in emerging markets at S&P Global Ratings, said public sector banks in India will likely have trouble maintaining momentum after the amount of new non-performing loans declined in the fiscal year first half to September 30, 2020.

State-owned lenders play a dominant role in India’s banking sector, with a wide branch network that serves the financial needs of an underbanked population. But public-sector banks have struggled with bad debts in the last few years that dragged on their profits.