SBI AUCTION - GOING, GOING, NOT YET GONE!
By Ruma Dubey
It was the mega-auction of the year; the biggest put up by any bank in India till date. Yet, the response was pretty tepid.
State Bank of India (SBI) finally gathered the gumption to auction off the possessed assets – residential properties, warehouses, factories, offices from those who defaulted. Instead of selling such properties locally, as was the practice every year, this time around, it put up the auction online. On sale were some 350 properties and expected to fetch the bank around Rs.1000 to 1500 crore.
The auction concluded yesterday and SBI, which was expecting the properties to sell like hot cakes, managed to sell only 40% - it sold some 124 properties and could collect Rs.100 crore. Majority of what was sold were residential properties, bought by end-users themselves. Though 60% of the properties remained unsold, SBI feels that this was great response.
These properties were mortgaged for housing and other loans and when they could not repay, SBI took over the assets under the Security and Reconstruction of Financial Assets and Enforcement of Security Interest (Sarfaesi) Act due to non-payment of pending dues by the borrowers. Interestingly, based on RBI data for FY14, NPA recovery through Sarfaesi accounted for about 80% of the banking sector’s recoveries at Rs.23,200 crore.
What SBI has done is feel the waters; it has assessed for itself how a nation-wide e-auction method, which is transparent, can be used to sell such distressed assets. For other banks, it has shown the way where they too can use the e-auction route and sell assets and raise ready cash to reduce bad debt.
That is the whole purpose of this e-auction – to reduce NPAs. SBI has become aggressive over the past couple of months. Q3FY15 numbers of SBI show that non-performing assets (NPAs) of the bank was at 4.9% of the total loans given by the bank v/s 5.73% in previous Q3. And the bank has most certainly shown a lot of aggression for recovery but the numbers also show that all this aggression is towards small and large corporates and even agriculture but when it came to mid-size companies, the NPAs have only increased. This means, the bank is yet to catch the collar of most of India Inc while it wrings the neck of the smaller entrepreneurs and companies. Might on small is always easy to exert.
But what we can say for sure is that this is a good move. SBI will soon have to move against the mid-size companies too as it is itself staring at huge NPAs. In fact most of the PSU banks could come up with this e-auction and raise ready cash as the pressure is mounting to bring down mounting NPAs. The Minister of state of Finance, Jayant Singha stated in Lok Sabha that banks in India, including state-run and private sector lenders, have accumulated NPAs to the tune of Rs.3,00,611 crore as of December 2014. Of the total NPAs, state-run banks accounted for Rs.2,62,402 crore of bad loans while private sector banks accounted for the remaining Rs.38,209 crore, the minister said. In percentage terms, gross NPAs of state-run banks constituted 5.64% of their total gross advances of Rs46,49,843 crore as of December 2014, while NPAs of private sector lenders constituted 2.78% of their total gross advances of Rs.16,77,875 crore.
NPAs of most PSU banks have deteriorated in Q3 with PNB leading the pack with Gross NPAs, sequentially rising 7% and 34% YoY while Net NPAs rose 19% and a huge 52% respectively. Bank of Baroda was also bad – Gross NPA QoQ rose 18% and 30% YoY while Net NPA rose 24% and 25% respectively. This is story, only with slight degree of variation amongst most of the PSU banks.
Loan norms are set to get stricter from 1st April 2015 – stressed loans can no longer be classified as restructured assets but must be NPAs with the stipulated provisioning. Thus do not be surprised to see a rush of auctions in the coming few days.
On another note, remember the scene from old Hindi movies, where there is a “neelami” and the hammer goes down after the count of three; with the families getting emotional and going away with a photo frame and nothing else. Well, surely nothing like that will happen when Kingfisher House goes under the hammer – SBI has promised that under the second round of auction, Mallya’s property will also be auctioned. Let’s see who buys this; would surely be a historic moment is many ways for India Inc. Or then again, will it go at all under the hammer as the rich and powerful rarely face such scenes.