Even as they sit on mountain of bad loans, two large public sector lenders PNB and IDBI Bank on Tuesday said they are not planning to sell any stressed loans to asset reconstruction companies (ARCs), citing pricing issues and also they expect to recover the money from these accounts through innovative ways.
Stating that selling bad loans to ARCs is not the only way to recover bad loans, newly-appointed PNB managing director and chief executive Usha Ananthasubramanian said there are more innovative ways to deal with NPAs than an outright sale to ARCs.
“There are traditional methods of attacking bad loans, we need to get a bit more innovative. We are looking at the new dispensations and the methodologies allowed to us. We need to look at new approach while dealing with NPAs,” she told reporters on the sidelines of the annul banking summit Fibac here.
Similarly, IDBI Bank also said it is not looking at approaching the ARCs to dispose of its mount of bad loans. Importantly, both these banks have reported spike in bad loans in the past quarters.
“At this juncture, we are not thinking of going to ARCs because the ARC market is not that good and also because of the low rates being offered in the market,” IDBI Bank's newly-appointed managing director and chief executive Kishor Kharat said.
PNB reported a steep 49 per cent fall in net profit at Rs721 crore in Q1 of this fiscal due to increased bad loans and higher provisions for NPAs which almost doubled to Rs1,811.4 crore from Rs927.61 crore in the year ago quarter.
Its gross non-performing assets stood at 6.47 per cent and net NPAs at 4.05 per cent. On the other hand, IDBI Bank reported 27 per cent increase in net profit at Rs135 crore despite a spike in gross non-performing assets which rose 31 per cent to Rs14,112 crore or at 6.64 per cent from 5.64 per cent.
On the contrary, yesterday, three public sector lendersUnion Bank of India, Corporation Bank and Bank of Maharashtra said they were planning to hit the ARC market with Rs1,200 crore, Rs1000 crore and Rs500 crore worth of bad loans respectively, next month. Union Bank said it would be selling Rs1,200 crore of bad loans if the right price was offered.
“In the first quarter, we had put on sale Rs900 crore of bad loans but we could not sell anything. This quarter, we are planning Rs1,200 crore of bad loan sale. We will do it only if pricing suits us,” Union Bank chairman Arun Tiwari said.
However, Kharat said he does not see any reason to sell bad loans to ARCs as most of these loans are already classified as NPAs and he hopes these accounts will get upgraded.
“Technically, because of the regulatory guidelines, we are required to treat them as NPAs. Otherwise, it is basically a cash-flow issue at the ground level. The moment that issue is resolved, the assets will be upgraded,” he added.
When asked about fund raising plan, Kharat said the bank has recently received Rs2,229 crore from the government and that there is no urgent need to raise fund immediately.
Over the past weekend, the government said it would infuse Rs20,088 crore into the main capital starved state-run banks such as SBI (Rs5,531 crore), Bank of India (Rs2,455 crore), IDBI Bank (Rs2,229 crore), Canara Bank (Rs947 crore), Union Bank of India (Rs1,080 crore), PNB (Rs1,732 crore), among others.