Public Sector Banks Struggle To Sell Bad Loans, Repeat Offers Hit 80%

Public sector banks put a large chunk of previously unsold bad loans back on the market during the June quarter, according to industry data cited by the Economic Times. The figures show that nearly four out of every five rupees worth of corporate bad loans offered by these banks had already failed to find buyers once before, pointing to how hard it has become for lenders to offload large legacy accounts at prices they consider fair.

State-run banks launched 36 separate sale processes in the first quarter of this financial year, covering loans with a principal outstanding of ₹49,746 crore, the data showed. Of this pool, ₹39,671 crore, or 79.7%, involved accounts that had been put up for sale before. Seventeen of the 36 processes were repeat attempts on loans that remained unresolved from earlier rounds.

The pattern looked even sharper when total dues, including accumulated interest, were counted instead of just the principal. Public sector banks offered loans worth ₹1.45 lakh crore in total dues during the quarter, and repeat accounts made up ₹1.03 lakh crore of that, or 71%.

Two lenders accounted for most of this repeated selling. Indian Overseas Bank and Indian Bank together made up close to 89% of the repeat offerings among public sector banks. Every single rupee of Indian Overseas Bank's ₹19,523 crore pool was a repeat account, while ₹15,730 crore of Indian Bank's ₹15,880 crore pool had also been offered earlier.

Smaller lenders showed a similar trend. The entire ₹1,934 crore pool from Central Bank of India and the ₹762 crore pool from Union Bank of India consisted of repeat processes. At Bank of India, ₹174 crore of its ₹179 crore offering had been taken to the market before.

Hari Hara Mishra, chief executive of the Association of ARCs in India, explained why lenders continue selling bad loans to asset reconstruction companies even after failed attempts. "There are several reasons driving NPAs (non-performing assets) for sale to ARCs (asset reconstruction companies). First and foremost, unlike any other measure, this gives a clean and immediate exit to banks," Mishra said, as quoted by ET. "For written-off accounts, it adds to the bottom line of banks, which they may use to meet additional provisions required on migration to expected credit loss."

He added that a cleaner balance sheet also benefits listed banks in the stock market. "In several transactions, it has been observed that an NPA sale announcement is immediately followed by a jump in the bank's share price," Mishra reportedly said.

Private Banks Show A Different Picture

Private sector lenders told a different story during the same quarter. They offered corporate and retail loans worth ₹10,734 crore, but only ₹369 crore of that, or 3.4%, involved repeat sale attempts.

Taken together, public sector banks, private banks and non-bank lenders put bad loans worth ₹63,472 crore up for sale during the quarter. Repeat processes made up ₹40,221 crore of this, or 63.4%, with public sector banks responsible for nearly all of the repeated pool.

Among private lenders, ICICI Bank offered ₹752 crore in housing loans and loans against property. RBL Bank placed ₹712 crore of credit card and personal loan accounts on sale, while YES Bank offered ₹643 crore in car and personal loans. Utkarsh Small Finance Bank's ₹727 crore pool consisted largely of microfinance and commercial vehicle loans, and Bandhan Bank offered housing loans worth ₹304 crore.