Asset Reconstruction Company (India) Ltd (Arcil) has pruned its yearly bad loan buying target by 30 per cent to Rs 3,500 crore following stricter guidelines issued by the Reserve Bank recently, a top official has said.

The pricing of the assets will have to be more “realistic” after the RBI issued new guidelines in August, but Arcil fears that banks may not be amenable for a steep cut in prices offered by asset reconstruction companies (ARCs) even though their bad loans issue is far from over, the official said.

“This year, encouraged by last year’s sales, we were expecting that a lot of sales will come and that was also proved in the first quarter ... but after August when the stake percentage has been increased to 15 per cent by the Reserve Bank, there has been a slowdown,” Arcil Managing Director and Chief Executive P Rudran told PTI here.

He said the agency promoted by top banks has had to cut its target to Rs 3,500 crore from the earlier Rs 5,000 crore for the fiscal.

Rudran said after the RBI guidelines, which asked ARCs to increase the cash component in the purchase of a bad asset to 15 per cent from the earlier 5 per cent, banks should be ready to get lower prices for the assets which they sell.

“The real issue is not 15 per cent. The issue is that there has to be a realistic assessment of the price at which you are selling. If you are selling at the right price, there is no problem,” he said.

When asked if this will deter banks from selling to ARCs, Rudran said: “There is a possibility banks will say I will not sell at all.”

For the industry as a whole, the asset sales by banks have been at Rs 16,000 crore during the first half against Rs 21,800 crore for entire FY14.

It can be noted that in the March 2014 quarter, the nation’s largest lender SBI for the first time sold Rs 4,000 crore worth of bad loans to ARCs. The bank again sold nearly Rs 3,000 crore in the first quarter of this year.

For the banking system as a whole, the bad loan pain is mounting with the first quarter figure crossing 4.6 per cent.

According to a report by rating agency Icra, public sector banks’ gross NPAs are estimated to touch 4.4-4.7 per cent by March 2015 against 4.4 per cent as on March 2014 and 4.6 per cent as of June 2014.

Related Topics