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Resolution of NPAs
Resolution of NPAs
Public Sector Banks (PSBs), which account for a major share of the NPAs, primarily focus on net NPA percentage and draw comfort from its improvement, which can happen, more often than not, by growth in their loan book. The focus on the reduction of the gross NPA block has emerged only recently.
Inter-creditor issues come into play between the term lenders and working capital bankers because of the borrowers’ propensity to service the working capital bankers for a longer period of time, while letting the term loans go unserviced. Different security profiles of the term lenders and working capital bankers (because of the depletion in value of current assets), pose difficulties in achieving convergence of approach amongst the lenders required for the achievement of 75% debt acquisition (for invocation of the powers under SARFAESI Act provisions).
Due to logistical reasons, it is not cost effective for the PSBs to have a focussed expert attention at a centralised point, leading to wastage of resources and delay in NPA resolution.
Transparent practices are important to encourage bidders’ participation in the NPA auction undertaken by the banks/FIs. It has been observed that, at times, the price expectation of the selling banks is higher than the best bid price discovered through the auction process. It is the desire of the bid participants that more transparent practices be followed by the selling banks for evolving a mature market. In several cases, reserve price is not being disclosed. Bidders often spend substantial resources and monies to participate in the bidding process, however, sometimes deals are being called off by the sellers without citing convincing reasons. The end effect is that few deals of sale of NPAs on cash basis can be concluded, resulting in large quantum of NPAs (on gross basis) remaining in banks books.
Additionally, the factors which may still impede the working of ARCs and need immediate attention are inadequate transparency in accounting causing distortions in valuation and delay in recognising the impending loss in value (due to non classification of assets so as to reflect their true value). Further, lack of up-to-date data on statutory and other liabilities, and high stamp duty and registration charges in certain states adversely impacts the value that can be offered to the selling banks/FIs.