PNB may sell some of its bad loans to ARCs

Punjab National Bank (PNB) will soon take a call on whether to sell some of its bad loans to asset reconstruction companies.

The bank’s Board may meet by the end of the month for this purpose, KR Kamath, Chairman & Managing Director of PNB told Business Line .

PNB had, for the last couple of years, taken a conscious decision of not offloading a portion of its NPAs to ARCs, Kamath said. The bank’s asset quality had taken a hit due to the slowdown in the economy.

With slippages on the rise and NPAs above the comfort zone, PNB may now use the ARC route. Kamath said that resorting to sale of NPAs to ARCs would mainly result in the bank getting security receipts (SRs) for the value of the assets transferred.

The cash component that could be realised from such transactions was usually low, and the ARCs mainly preferred to give out SRs, he said.

Also, if the investment value of SRs is reduced, then the bank concerned will have to make a provision. “Instead of going in for provision on SRs, I would rather look to keep the asset in my books and do the recovery myself,” Kamath said. But this strategy may now be reviewed at the next Board meeting.

PNB’s financial performance in 2013-14 was weighed down by an increase in provisioning for NPAs and also depreciation in investments.

“If the economy were to turn around later this year, I can easily improve my profits and show a better picture this fiscal,” he added.