The Hindu Business Line : IndusInd offers to manage NPAs for other banks

Speaking to Business Line, IndusInd Bank's Managing Director, Mr Bhaskar Ghose, said that the NPA management scheme would help banks to cut losses. Many banks are currently incurring losses on transferring assets classified as non-performing to asset reconstruction companies (ARCs) at large discounts. In some cases, the discounts for NPA takeouts by ARCs are well over 50 per cent of the face value. NPAs have also been discounted by over 70 per cent of their face value.

Banks absorbed these large discounts directly, since they had written off the assets by making large provisions during the last three years out of profits from treasury operations. Certain ARCs are taking out only assets, which can be turned around or big-ticket NPAs. The companies stay away from small ticket-NPAs — unsecured loans advanced to small and medium enterprises (SMEs) that had turned bad.

Mr Ghose said that the service offered by IndusInd does not involve any discounting of loans. He, however, did not disclose the fee that the bank plans to levy. "The fee will be far lower than the discounting rates of ARCs and would be on a case-to-case basis," he said.

IndusInd is offering its NPA management services for the quick recovery of bad loans. This would help banks improve their bottom lines. Present guidelines mandate that recoveries of interest arrears on NPAs be credited to the profit and loss account and principal recoveries to the capital reserves.

Mr Ghose said that IndusInd is able to offer such a service because of its positive experience in loan recoveries. The bank had written off Rs 1,500 crore of bad assets in 2002-03 and completely cleaned up its balance sheet. The bulk of these loans written off, he said, were advances to SMEs. By writing off the NPAs, the bank had created a tax shield. IndusInd had the flexibility to launch recovery proceedings against defaulting entities.

These moves began yielding results over the last two years and the bank made large recoveries. During the last financial year alone, IndusInd recovered Rs 150 crore from the SME sector with a bottom line impact of Rs 115 crore.

The recoveries were facilitated by the passage of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and the amendments made to it.

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