NPA sales down to a trickle of just 2% of total bad loans

Notwithstanding rising bad loan problems in the system, sale of stressed assets to asset reconstruction companies (ARCs) in 2015-16 was only a trickle of the NPA mount at 2 per cent of the total of nearly Rs 5.8 trillion, which is down a whopping 20 per cent from previous year, says a report.

Notwithstanding rising bad loan problems in the system, sale of stressed assets to asset reconstruction companies (ARCs) in 2015-16 was only a trickle of the NPA mount at 2 per cent of the total of nearly Rs 5.8 trillion, which is down a whopping 20 per cent from previous year, says a report.

“The overall loans sold in FY2016 were lower by 20 per cent y-o-y and around 15 per cent of the overall loans in the banking system,” Kotak Institutional Equities said today in a report that is based on the analysis of 33 public and private banks.

The report did not offer any reasons for the massive dip in the sales, but it can be noted that banks are not happy with the cheap valuation that ARCs are offering while these companies are capital starved to make the higher upfront payments to the banks. The report also did not quantify the total amount of bad loans sold to ARCs.

As per RBI, total NPAS in the system jumped to 7.6 per cent in 2015-16, up from 4.6 per cent in the previous fiscal, which it warned could jump to a whopping 8.5 per cent by this fiscal end. The total stressed assets including NPAs stood at a staggering 13 per cent or over Rs 8 trillion in 2015-16.

State-run banks sold 75 per cent of their overall bad loans, lower than the 90 per cent of loans sold in 2014-15.

Axis Bank sold the largest quantity of loans but at a significant loss. The SBI Group, however, had the largest share of loans sold at 33 per cent of the overall loans compared to over 60 per cent in 2014-15.

Allahabad Bank and Central Bank were the two large public sector banks which sold a high share of their loans to ARCs last year.

Axis Bank cuts funds based lending rate by 15 bps

Axis Bank’s one-year MCLR will now be at 9.35%, down from 9.5%

Mumbai: Axis Bank Ltd on Tuesday reduced its marginal cost of funds based lending rate (MCLR) by 15 basis points (bps) across all tenors and its base rate by 5 bps, with effect from 18 April.

One basis point is one-hundredth of a percentage point.

In a statement, the lender said that its one-year MCLR will now be at 9.35%, down from 9.5% the bank had announced as on 1 April.

Two-year MCLR is set at 9.45%, while three-year rate is set at 9.5%, the bank said.

Axis Bank’s reduced base rate will be at 9.45%, for all its existing borrowers.

Even with the latest round of rate reduction, Axis Bank’s one-year MCLR is higher than that of State Bank of India (SBI), which had set it at 9.2% as on 1 April.

Axis Bank is the first lender to reduce its lending rates after the Reserve Bank of India (RBI) announced a 25 bps reduction in repo rates on 5 April and new liquidity measures making it easier for banks to access funds. The measures are expected to have reduced the cost of funds for banks.

RBI introduced MCLR on 17 December, and the guidelines mandated that banks must price incremental loans using MCLR.

Under MCLR, banks will need to consider their marginal cost of funds, or the cost incurred on incremental deposits across different maturities. To this, banks will add their operating costs, the negative carryover of their cash reserve ratio balances with the central bank and a tenure premium. MCLR is only applicable for new customers, while existing customers may choose to shift to it from the current base rate system.

Sun Capital