Banks expect a haircut of about Rs 50,000 crore under the proposed asset management company (AMC)/Alternate Investment Fund (AIF) model for resolution of stressed loans.
The non-performing loans of over Rs 500 crore are proposed to be resolved through this route. Total such NPAs are pegged at about Rs 3.6 lakh crore, of which Rs 3.1 lakh crore belongs to public sector banks.
According to two bankers aware of the deliberations, some lenders want further discussions through Indian Banks Association (IBA) on the proposal fearing it would dent their bottomline immediately.
The sale value to an asset reconstruction company could be much lower and banks may have to make adequate provisions and also raise capital to cover the provision, said managing director of one bank.
“There needs to be more clarity on how that capital can be raised and if there are other options besides seeking government support,” said the banker.
The extent of provision would depend on how long the account has been non-performing asset (NPA). “So, if I’m selling a loan, which has been an NPA for say two years, my total provisioning would be around 25-30%. If on this I’m to take a haircut of say 60%, I will need to find money to cover the remaining portion,” he said.
Reserve Bank of India norms dictate that banks have to make a provisioning of 15% in the first year, 25% in the second, and have to set aside 40% of the loan amount in the third year. Full provisioning is required thereafter. Under the existing RBI norms, provisions for accounts referred to the National Company Law Tribunal (NCLT) is at 40% of dues at the end of March of that year for secured loans, and 100% for unsecured portion.
Another banker said that unless there is a clear protection from the proposed overseeing committees (OC) in such deals, the decision making process may be difficult because of the likely deep haircut they may have to take. “I think IBA will also offer some clarity on the issue,” he said.