NPA sale to remain slow for two qtrs

The pace of bad loan sales to asset reconstruction companies(ARCs) by banks slumped in the second quarter of the current financial year, after the sector witnessed a deal-making frenzy in the first quarter.

It is expected to stay in a slow lane for another two quarters, as ARCs grapple with fund and capital raising plans and reworking business models, according to survey by Alvarez and Marsal (A&M), a performance improvement and turnaround management firm Stock Market Trading Tips

The Reserve Bank of India (RBI) has made significant changes in norms for asset buying and selling to ensure ARCs have skin in the game. The rules were revised to make banks identify stressed loans early and take immediate steps to find solutions.

According to A&M, over the next six months, most ARCs feel that the sale of stressed assets would slow down and regain momentum only in the subsequent quarters Financial Astrology Trading Tips

This was anticipated with increased cash component of the acquisition price and additional disclosures regarding valuation of assets by ARCs.

In the next six months, ARCs expect SBI and its associates and Central Bank of India to offload the maximum value of stressed assets in the market among the public sector banks. This will also rationalise pricing Intraday Trading Tips

During the past six months, the average acquisition value had been in the range of 60 to 80 per cent of the book value. This is expected to decline to 40 to 60 per cent of the book value over the next six months.

In light of the new regulations, a majority of the ARCs plan to change their bidding strategy. The management fee charged by ARCs, which have been in the range of 1.5 to 2.5 per cent of the gross acquisition price, will now reduce with fees being tied to the performance of the ARC in terms of recoveries Nifty Trading tips

The average cash component of the acquisition price by ARCs as a percentage of total acquisition value has been in the range of 6 to 10 per cent, which will now increase to greater than 15 per cent.

As per CRISIL, the credit rating agency, for the principal debt acquired until 2008, the recovery ratio (it is the recovery as a percentage of principal debt acquired) as on December 2013 was 36 per cent.

ARCs would seek clarity on rights vis-à-vis banks for accounts, which are in special mention accounts 2, of those loans, where the repayments remain due for 60-90 days, A&M said Personal Numerology Trading Tips