RBI has encouraged banks to look at asset reconstruction companies as a supportive system to deal with the rising NPA menace
GN Bureau | May 2, 2014
With a view to relieve themselves from the mounting pressure of the bad loan pile, a number of public sector banks (PSBs) is hoping to sell about Rs 2,000 crore of these loans to asset reconstruction companies.
According to media reports, the various banks working on offloading bad loans include – UCO Bank (Rs 1,000 crore), State Bank of Hyderabad (Rs 700 crore), and Canara Bank and State Bank of India which are selling off smaller portions to asset reconstruction companies (ARCs).
The move, which comes in the beginning of this fiscal, is a first in almost 10 years and reflects the urgency at PSBs to get rid of bad loans. Earlier, banks sold off loans to ARCs only towards the end of the fiscal in order to present clean balance sheets.
According to analysts quoted in media reports, banks are undertaking this step to benefit from the one-time dispensation facility given by the Reserve Bank of India (RBI) on sale of such loans. Under this facility, if banks sell assets to ARCs below the net book value, losses incurred due to this can be amortised over two years up till March 2015.
In addition, RBI has encouraged banks to look at ARCs as a supportive system to deal with stressed assets instead of dumping NPAs there as a last resort.
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