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Despite rising NPAs, PNB,IDBI not to sell bad loans to ARCs

Stating selling bad loans to ARCs is not the only way to recover bad loans, the newly appointed PNB managing director and chief executive Usha Ananthasubramanian said there are more innovative ways to deal with NPAs than an outright sale to ARCs.

Even as they sit on mountains of bad loans, two large public sector lenders-PNB and IDBI Bank-on Tuesday said they are not planning to sell any stressed loans to asset reconstruction companies (ARCs), citing pricing issues and also they expect to recover the money from these accounts through innovative ways.

Stating selling bad loans to ARCs is not the only way to recover bad loans, the newly appointed PNB managing director and chief executive Usha Ananthasubramanian said there are more innovative ways to deal with NPAs than an outright sale to ARCs.

"There are traditional methods of attacking bad loans, we need to get a bit more innovative. We're looking at the new dispensations and the methodologies allowed to us. We need to have look at new ways of approach while dealing with NPAs," she told reporters on the sidelines at the annual banking summit Fibac in Mumbai.

Similarly, IDBI Bank also said it is not looking at approaching the ARCs to dispose of its mount of bad loans. Importantly, both these banks have reported spike in bad loans in the past quarters.

"At this juncture, we are not thinking of going to ARCs because the ARC market is not that good and also because of the low rates being offered in the market," IDBI Bank's newly appointed managing director and chief executive Kishor Kharat said.

Significantly it can be noted that these two banks have reported an increase in their bad loans in the past quarter.

PNB had reported a steep 49 per cent fall in net profit at Rs 721 crore in Q1, due to increased bad loans and higher provisions for bad loans which almost doubled to Rs 1,811.4 crore from Rs 927.61 crore in the year ago quarter.

Its gross non-performing assets stood at 6.47 per cent and net NPAs at 4.05 per cent. On the other hand, IDBI Bank had reported a 27 per cent increase in net profit at Rs 135 crore despite a spike in gross non-performing assets rose 31 per cent Rs 14,112 crore or at 6.64 per cent from 5.64 per cent.

As against this, on Monday, three public sector lenders-Union Bank of India, Corporation Bank and Bank of Maharashtra-had said they were planning to hit the ARC market with Rs 1,200 crore, Rs 1000 crore and Rs 500 crore worth of bad loans, respectively next month.

Union Bank had said it would be selling Rs 1,200 crore of bad loans if the right price was offered.

"In the first quarter, we had put on sale Rs 900 crore of bad loans but we could not sell anything. This quarter we are planning Rs 1,200 crore of bad loan sale. We will do it only if pricing suits us," Union Bank chairman Arun Tiwari had said.

Kharat further said he does not see any reason to sell bad loans to ARCs as most of these loans are already classified as NPAs and he hope these accounts will get upgraded.

"Technically, because of the regulatory guidelines, we are required to treat them as NPAs. Otherwise, it's basically a cash-flow issue at the ground level. The moment the cash-flow issue is resolved, the assets will be upgraded," he added.

When asked about fund raising plans, Kharat said the bank has recently received Rs 2,229 crore from the government and that there is no urgent need to raise fund immediately.

Over the past weekend, the government had said it would infuse Rs 20,088 crore into the main capital starved state-run banks such as SBI (Rs 5,531 crore), Bank of India (Rs 2,455 crore), IDBI Bank (Rs 2,229 crore), Canara Bank (Rs 947 crore), Union Bank of India (Rs 1,080 crore), Andhra Bank (Rs 378 crore), Corporation Bank (Rs 857 crore), Bank of Maharashtra (Rs 394 crore), Allahabad Bank (Rs 283 crore), PNB (Rs 1,732 crore), Indian Overseas Bank (Rs 2,009 crore), Bank of Baroda (Rs 1,786 crore) and Dena Bank (Rs 407 crore).