Banks are likely to sell fraudulent loans worth nearly Rs 1 lakh crore to National Asset Reconstruction Company Ltd (NARCL) and other ARCs after the Reserve Bank of India allowed lenders to sell such loans, the Economic Times mentioned in a report citing industry estimates.
According to RBI data, banks have declared loan frauds amounting to Rs 3.95 lakh crore over the last three years. The move by banks is expected to help NARCL meet its target of acquiring Rs 2 lakh crore of loans.
Last week banks and asset managers had sought the central bank’s approval to allow the sale of such accounts to asset reconstruction companies, something the banking regulator was averse to.
“Those largevalue loans which have large bank consortiums are likely to be offloaded to NARCL. The new RBI rules will help NARCL identify their leftover kitty,” the publication quoted as saying a banker having knowledge of the matter. “Since there is a government guarantee, banks don’t have to fully provide for loans which don’t have total provision cover, unlike incremental provision for sale to ARCs.”
NARCL, which has an acquisition target of Rs 2 lakh crore, has already identified loans worth Rs 89,000 crore. The government has given a guarantee of nearly Rs 31,000 crore on these bad loans.
Stakeholders believe that since there has been a negligible recovery in fraud cases through the bankruptcy mechanism or Debts Recovery Tribunals, allowing such accounts to be sold to ARCs will fetch better returns and free up capital. “Guidelines on sales in respect of both standard and stressed loans… were issued from time to time. The present loan exposure transfer guidelines repeal 18 existing guidelines, some as old as of 2003, and provides an integrated regulatory framework, introducing new measures and safeguards aimed at the development of a vibrant secondary loan market,” the financial daily quoted as saying Hari Hara Mishra, director, UV ARC.
