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Banks to toss out bad loans

Banks looking at tossing out bad loans, but pricing a liability

Apnaloan.com Research Bureau

22 Mar 2008

Many banks are looking at selling bad loans to spruce up their balance sheets, at the end of the fiscal year.

As reported by Economic Times, according to market sources, while some banks are entering into one-to-one deals, others are planning to auction stressed assets.

The list includes State Bank of India (SBI), Allahabad Bank and UCO Bank. SBI is keen to sell Rs. 200 crore while Allahabad Bank wants to dispose loans with a face value of Rs. 200 crore, whereas UCO Bank plans to sell about Rs. 260 crore worth Non-Performing Assets (NPAs).

The bad loan market became active in the last couple of years after the Reserve Bank of India permitted NPA trading among banks. Entities interested in acquiring NPAs have been on the rise since then. Likewise, more and more state-owned banks are showing confidence in disposing a part of their stressed portfolio through this route.

Among the major one-to-one deals, ICICI Bank sold about Rs. 300 crore stressed loans to Asset Reconstruction Company of India and another Rs. 300 crore to Kotak Mahindra Bank a few months back.

However, pricing has emerged as a key hurdle for banks while auctioning loans. As reported by Economic Times, according to sources, many banks have failed to sell their bad loan portfolio as the bids were lower than the reserve price (the minimum that the bank expects to receive for the asset on the block).

For instance, in the last couple of months, SBI's Rs. 1,000-crore auction failed to take- off because the bank was not happy with the bids. Similarly, Punjab National Bank's Rs. 500-crore auction also faced the same fate.