oppn parties Banks Taking Big Haircuts To Sell Stressed Assets

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  • In reply to a question in Parliament, the government says it is empowered to lawfully intercept, monitor or decrpyt information stored in a computer resource in the interest of sovereignty or integrity of India
  • Police stop a 12-year old girl on her way to the Sabarimala shrine
  • In Karnataka, the JD(S) indicates that it might support the BJP government if it falls short of numbers after the bypolls
  • Congress pips the BJP in local body elections in Rajasthan, winning 961 wards to the BJPs 737
  • After Airtel and Vodafone-Idea, Jio also indicates that tariffs will be raised from December
  • Sources in Shiv Sena say that they might revive the alliance with the BJP if it offers the 50:50 deal
  • A miffed Sanjay Rout of the Shiv Sena says that it will take "100 births" to understand Sharad Pawar
  • Mobile operators Vodafone-Idea and Airtel decide to raise tariffs from next month
  • Sharad Pawar meets Sonia Gandhi and says more time needed for government formation in Maharashtra
  • Justice S A Bobde sworn in as the 47th Chief Justice of India
  • Supreme Court holds hotels liable for theft of vehicle from their parking area if parked by valet, says "owner's risk" clause is not a shield from such liability
  • Finance Minister says she is receiving feedback from many sectors that recovery is happening as there is lower stress
  • Sabarimala temple opens, but police bar the entry of women below 50 years
  • Finance Minister Nirmala Sitharaman says Air India and BPCL to be sold off by March
  • Media person Rajat Sharma resigns as DDCA president
Two Muslim litigants in Ayodhya refuse to accept the Supreme Court order, say review petition might be filed
oppn parties
Banks Taking Big Haircuts To Sell Stressed Assets

By Linus Garg

About the Author

Sunil Garodia Linus tackles things head-on. He takes sides in his analysis and it fits excellently with our editorial policy. No 'maybe's' and 'allegedly' for him, only things in black and white.
Asset reconstruction companies (ARCs) never had it so good. With the financial year coming to an end, they are seeing booming business as banks pressed for cash are putting large blocks of stressed assets for sale and that too at lucrative prices for cash payments. They want cash payments because they want to avoid provisioning for NPAs in the year-end balance sheet. A report in The Financial Express says that ARC executives are upbeat about business as banks are willing to take even 60% haircuts, with Central Bank even willing to take an 84% haircut in Alok Industries, as its reserve price suggests.

In the last two years, there were reports from various sources that suggested that banks would have to take upwards of 50% haircut to clean up the NPA mess. In July 2017, credit rating agency Crisil said that the exposure of banks in top 50 stressed assets was close to Rs 4 lakh crore and they could realize only Rs 1.6 lakh crore, implying a haircut of 60%. Crisil classified the haircuts into four broad categories — marginal (less than 25 percent), moderate (25-50 percent), aggressive (50-75 percent), and deep (greater than 75 percent). One-fourth of the debt analyzed was identified to need marginal or moderate haircuts, while a third needed aggressive, and nearly 40 percent, deep haircuts. It seems 21 months later, the suggested haircuts are actually taking place.

As banks realize that chances of recovering the loans are getting slimmer by the day, they want to get some amount back instead of not getting any. The other benefit is that the provisioning liability comes down and it frees up capital to that extent. Banks are also under pressure from the RBI to clean up their balance sheets. Banks want to settle National Law Tribunal-related exposures at a much lower rate provided they get cash payments. Delays in resolution through the fledgling Insolvency & Bankruptcy Code (IBC) also seems to have forced the banks to go through this route.

pic courtesy:thehindubusinessline.com