SBI likely to transfer Rs 20,000 crore NPAs to National Asset Reconstruction Company

This is primarily attributable to >95% of unsecured credit being offered to government/PSU employees and ~41% of corporate loans being offered to PSUs / govt. undertakings.

By Ankur Mishra

State Bank of India (SBI) has identified bad loans worth Rs 20,000 crore that it plans to transfer to the National Asset Reconstruction Company (NARCL), sources close to the development told FE. These non-performing assets (NPAs) include Essar Power Gujarat, Coastal Energy and Reliance Naval.

In all, banks have identified 22 stressed accounts worth around Rs 89,000 crore that they want to transfer to NARCL in the first phase. Over time, lenders are expected to move loans worth nearly Rs 2 lakh crore to the bad bank.

In an email response to FE, SBI said, “It is a policy of the bank not to comment upon individual accounts and its treatment.”

FE also learned that the operational guidelines for NARCL are in the final stages, but the value at which the assets will be transferred is yet to be decided.

Explaining the process at NARCL, a senior bank official said: “Suppose NPAs worth Rs 89,000 crore are transferred to NARCL at an 80% haircut, NARCL will buy the exposure at Rs 17,800 crore.” Of the Rs 17,800 crore, NARCL will provide upfront cash of 15% to the banks and issue security receipts (SR) for the remaining 85% or Rs 15,130 crore. The upfront cash that banks receive would result in a write-back of provision for the lenders.

“In case the recovery is higher, assuming it to be 40%, the lenders will get the benefit via security receipts,” the bank official said.

The accounts that banks have chosen to transfer to NARCL should be completely provided for by the lenders, as per the Indian Banks’ Association (IBA) directions. The NPA accounts should also not be categorised as fraud or nearing a resolution for being eligible to be sent to NARCL.

IBA chairman Rajkiran Rai G has said banks have identified Rs 89,000-crore NPA accounts which could go to the ARC in the first phase. Rai added that only if the ARC management finds these assets worthwhile, it would make an offer to the banks.

Rai, who is also the MD and CEO of Union Bank of India, said, of the total amount, Union Bank has identified Rs 7,800-crore bad loans to be sent to NARCL. Similarly, Punjab National Bank (PNB) MD and CEO SS Mallikarjun Rao had said the lender had identified Rs 8,000-crore NPAs to be sent to NARCL.

In her Budget speech, finance minister Nirmala Sitharaman had announced setting up of an ARC and asset management company (AMC) for the resolution of stressed assets.

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