Banks managed to sell half of the loans they put up for sale this fiscal at better prices than last year, according to four people familiar with the numbers, as recoveries through insolvency process are expected to rise.
Asset reconstruction companies purchased at least Rs 22,000-crore loans from a total of Rs 40,000 crore banks tried to sell in the year ending March, the people said on the condition of anonymity as details of stressed-asset sales aren’t public. By comparison, ARCs had bought Rs 17,500-crore loans in the previous financial year from the pool of Rs 30,000 crore.
To be sure, the numbers are provisional and could change by March 31 as ARCs and banks reach a consensus on further sales.
ARCs got discounts of about 50-55 percent to the book value, the people cited earlier said. That’s lower than 55-60 percent in the previous fiscal, the first of the four people cited earlier said. What that means is lenders got more for their loans.
One reason for lower discounts this year is potential recovery under the Insolvency and Bankruptcy Code. As the process draws to a close for a number of the 40 large corporate accounts under insolvency process since 2017, ARCs don’t mind paying slightly more in all-cash deals, the first person said. Once the ARC has purchased the loan in cash, he said, any upside in the recovery will remain with it.
Banks saw improved recoveries and upgrades in the current financial year as the resolution of a few large cases under the bankruptcy law yielded encouraging results, according to a report released by ICRA Ltd. on March 14. In the first six months ended December, banks have seen resolution in at least four cases with a cumulative exposure of the industry at Rs 70,000 crore.
Cases like Essar Steel Ltd. and Bhushan Power & Steel Ltd. are expected to be closed soon, where loans worth nearly Rs 1 lakh crore are pending resolution. ICRA estimates that lenders could recover around 75-80 percent in these accounts, higher than the provisions set aside.