While Andhra Bank wants to sell off more than 100 accounts adding to about Rs 4,000 crore of loans, Allahabad Bank has invited bids for 73 accounts with outstanding loans of Rs 2,000 crore.
The assets on sale include Seven Hills Hospital, Visa Power, Visa Steel, L&T Chennai Tada Toll Road, KS Oil, Transstroy India and a few of its associate companies, Maheshwari Ispat and Abhijeet Power, two senior executives told ET. Nearly two dozen asset reconstructions companies or ARCs will participate in bidding for the bad loans on offer, they said on condition of anonymity.
This is the first auction of bad loans by the two commercial banks after the Reserve Bank of India revised norms for sale of bad loans, which came into effect since the beginning of this financial year and are designed to ensure that ARCs have skin in the game.
The outcome of these two auctions will therefore have a bearing on the sale of bad loans in the coming quarters, the executives said. As per the new norms, ARCs will have to pay at least 50 per cent of the purchase price in cash and the balance 50 per cent can be paid in form of security receipt or SR.
This is similar to bonds and matures over five to seven years depending on the success of debt recast.
Till last year, only 15 per cent of the purchase price was paid in cash while the balance was paid in form of SRs. As per the revised norms, banks can accept less cash and more SRs provided they make higher provisions on such accounts.
The sale of assets will strongly depend on the reserve price set by the banks. ARC industry executives said banks will have to accept a lower valuation for the assets that are put on the block since they would be receiving more cash up front.
Banks, on the other hand, feel that the value of the assets does not change materially just because the buyer pays more cash upfront, the executives cited earlier said.
Andhra Bank reported a net profit of Rs 174 crore with gross bad loans of 12.2 per cent or Rs 17,669 crore of total loans for 2016-17.
For the same period, Allahabad Bank reported a net loss of Rs 314 crore with gross bad loans of 13 per cent or Rs 20,687 crore. Staterun banks are in a hurry to get rid of bad loans since the government, which is the majority stakeholder, has agreed to give additional capital only if banks clean their books and make profits.