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C. Shivkumar

Non-performing assets classified as loss are those that have been written off. Banks are focussing on recovering these assets.

Bangalore , Sept. 22

FACED with sagging treasury incomes, public sector banks are now shoring up their profits and capital by intensified recovery of loss assets.

Sources said the recovery of loss assets helps them boost their profit and loss accounts.

Non-performing assets classified as loss are those that have already been written off. It is these assets that the banks are focussing on.

Bank of India, for instance, is planning to recover at least Rs 1,000 croreduring the current financial year.

Speaking to Business Line, the BoI Executive Director, Mr P.L. Gairola, said: "At least 20 per cent of this recoveries will be from written off assets."

In fact, most of the public sector banks stresses that at least 25 to 30 per cent of the written off assets are recovered.

Bankers said one of the main advantages was that such recoveries went directly to the profit and loss account.

Recoveries of substandard assets, on the other hand, meant that only the interest/penal interest levies would be treated as income.

Principal recoveries are part of the capital. In written off assets, both principal and capital are treated as income.

Bankers said the recoveries were facilitated with the passage of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act.

Consequently, none of the banks wasinterested in passing on the assets to the Asset Reconstruction Company Ltd (ARCIL).

Bankers said if such assets were passed on to ARCIL, they would have to incur huge discounts, upwards of 50 per cent, on the face value of the assets.

Recoveries of the NPAs therefore meant that they would be saving on the discounts, bankers said.

They also said such recoveries helped them bring about a reduction in their gross non-performing assets.

In fact, some of the banks are slated to bring down their gross NPAs down to less than 3 per cent of the gross assets.

So far, most of the NPA reduction has focussed only on making large provisions.

This year, recoveries alone would help banks create substantial cushion for making floating provisions, they said.

Moreover, bankers said the recoveries of the loss assets would also help them to substantially mitigate the capital charge requirements when Basel II norm for market risk comes into force from next year.

This was because income from these loss assets alone would be sufficient to take care of some of the deprecation requirements on securities in the marked to market categories, they added.

However, the flip side was that the banks would face higher tax liabilities on account of the high recoveries.

But bankers said: "Even if we payout corporate taxes at the peak rate, we will still have substantial retention, that will strengthen our capital."

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