State-owned banks identify $12 bn NPAs to be transferred to bad bank

Public sector banks have identified a total of 22 large bad loan accounts worth Rs 89,000 crore (approximately $12.2 billion) to be transferred to government-led bad bank National Asset Reconstruction Company Ltd (NARCL). 

The preliminary assessment is around 22 total accounts in the first phase, said Rajkiran Rai G, managing director and CEO at Union Bank of India. 

The public sector bank, which completed a year of merging Andhra Bank and Corporation Bank with itself to become the fifth-largest government bank, has identified 17 large accounts worth Rs 7,800 crore (around $1.07 billion) with close to 10% provision cover to be moved to NARCL, he said. 

Provision is the capital set aside by banks towards non-performing assets (NPAs) to make up for the loss of a loan ahead of time. Any repayment from such loans gets added to the bank’s profits. 

NARCL 

NARCL, which will be led by SBI chief general manager Padmakumar Madhavan Nair, is expected to be operational by next month. 

Formally proposed in the Union Budget for the fiscal year 2021-22, the bad bank will take over large bad assets or loans worth over Rs 500 crore from lenders for resolution. This will help public sector banks clean their balance sheets faster. 

Overall, the management of NARCL will take the final call on the actual purchase of the NPAs. 

Overall, the NARCL is expected to aim at resolution of around Rs 2-2.5 lakh crore worth of stressed assets in around 70 large accounts. 

Rai added, “As banks we have prepared the ground and estimated this number but NARCL’s management will decide on what the bad bank would ultimately buy…Lead banks have conducted meetings with various other banks and come up with this number.” 

Union Bank of India is yet to join the board but is “likely to pick up 9% stake in the NARCL”, Rai added. 

Some state-owned banks including Punjab National Bank (PNB) have given in-principle approval to acquire sub-10% stake in the bad bank and others may finalise soon. 

Union Bank of India 

Union Bank of India reported a net profit of Rs 1,330 crore for Q4FY21 as compared with a loss of Rs 7,157 crore in the year-ago period (which does not include financial numbers of erstwhile Andhra Bank and Corporation Bank). 

The merged bank’s asset quality also improved with gross NPAs at 13.74% of total loans at the end of March this year as against 14.59% a year ago and 13.49% at the end of Q3FY21. Net NPAs also reduced to 4.62% from 5.22% a year back but worsened from 3.27% at the end of the third quarter of FY21.