Offering loans to clean up bad loans! State-run banks to issue loans worth Rs 30,000 crore to ARCs

To clean up bad loans and meet government-stipulated performance targets for the year, state-run banks are selling the second-biggest tranche of bad loans in a quarter.

They are offering loans worth Rs 30,000 crore to asset restructuring companies (ARCs). Lilliput Kidswear, Corporate Power, S Kumars Nationwide and Essar Bulk Terminal are among a dozen companies whose loans are part of the sale.

People, who are aware of the development, said auction for the identified assets would be done in the next few weeks as potential buyers are expected to bid at prices higher than in the previous rounds in the backdrop of the economy showing signs of revival.

They further said Neptune Developers, Shiva Holdings, Salasar Steel and Power, and Nitco Tiles are on the block. Central Bank of India tops the list of sellers with Rs 3,500 crore worth of loans, followed by Oriental Bank of Commerce at Rs 1,200 crore.

Punjab National Bank, which has been out of the market for bad loans, returns after at least 3 years with Rs 1,500 crore of loans. This is the highest sale of bad loans since the last quarter of fiscal 2014 when 40 banks had put on the block loans worth Rs 42,800 crore.

According to one of the bankers, a number of loans from infrastructure sector such as power, steel and port would be auctioned.

Indian banks, which have been postponing recognition of bad loans by either restructuring, or ever-greening, do not have such incentives any more as the regulator is getting strict in recognising defaults as such. Furthermore, the government which has stipulated performance parameters for investing more capital, has also said that bad loans need to be brought down if a bank is interested in receiving capital.

Stressed assets - aggregate of restructured loans and gross bad loans of state-run banks - has touched Rs 7.12 lakh crore, or 13.2%, of total loans as on March 2015, shows RBI data.

(Image: Indiatimes)