|SBI chairperson A Bhattacharya|
of its assets as bad loans in the December quarter.
According to a top SBI official, there are 14 ARCs functioning today, and SBI has invited many of them to pick up our stressed loans of around Rs 5,000 crore. The move comes ahead of the tighter provisioning norms kicking in from next April, which the Reserve Bank of India had announced in May 2013 when it had more than doubled the provisioning for restructured loans to five from two percent.
Earlier this month, SBI chairperson Arundhati Bhattacharya had said in Kolkata that "the bank was considering a proposal to sell NPAs in the current quarter. This would be for the first time we would be selling NPAs to asset reconstruction companies or ARCs."
Generally, ARCs pay 5-10 percent of the total bad loans being bought pay in cash and the rest could be security receipts (SRs). In the quarter to December alone, SBI had added as much as Rs 11,400 crore in fresh bad loans or 5.73 percent, taking its overall NPA amount to a whopping Rs 67,799 crore.
This whopping amount brought down SBI’s net profit by a 34 percent to Rs 2,234 crore.
As of the December quarter, as much as Rs 67,799 crore of its Rs 11,83,723 crore assets or advances as classified as NPAs, or 5.73 percent up from Rs 64,206 crore or 5.64 percent in the previous quarter. While its net NPAs stood at Rs 37,167 crore or 3.24 per cent in Q3 and Rs 32,151 crore or 2.91 per cent in the previous quarter when its total net NPA was at Rs 11,39,326 crore.
Banks, mostly state-run ones, will be selling close to Rs 43,000 crore to ARCs by the end of the month as the total bad assets in the system rose to 4.1 percent of the total advances. This is almost four times the amount that was put up for auctions in the past quarter. The urgency of bans comes as RBI has been encouraging banks to clean up their books.
In his inaugural address on September 4 last, RBI governor Raghuram Rajan had said that promoters of failed companies have no divine right to remain in control of such companies. The rush to off loan bad loans is also to guard them against higher loan loss provisions that kick in from next March, by when all restructured loans would be classified as non-performing accounts attracting higher provisions.
On May 30 last year, the apex bank had tightened the norms for loan restructuring norms by raising provisions to five percent in line with the global practices, in a gradual manner. According to the RBI notification, provisioning on the newly restructured account was raised to five percent from June 1, 2013 from 2 percent.
As on 31 December 2013, the government of India holds 62.31 percent stake in SBI.