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UCO Bank to sell Rs2,420 crore of bad loans

LiveMint logoLiveMint 08-09-2017 Alekh Archana

Mumbai: State-owned UCO Bank has initiated the process of selling bad loans worth Rs2,420 crore from 27 accounts, a tender document on its website showed.

The bank, currently under the Reserve Bank of India’s (RBI) prompt corrective action (PCA), has invited asset reconstruction companies (ARCs) and other financial institutions to submit expressions of interest by 11 September.

The sale comes at a time when the Kolkata-based lender is finalizing a plan to meet the central bank’s 13 December deadline to resolve list of accounts named in its second list of defaulters.

If lenders, including UCO Bank, don’t meet the deadline to finalize resolution plans for at least 28 accounts in the list, they will have to initiate proceedings under the Insolvency and Bankruptcy Code.

UCO Bank is selling the loans from its corporate loan segment and they are not limited to any particular sector, said a person aware of the development on the condition of anonymity, as he is not authorized to speak to the media.

The bulk of these accounts, he said, have remained as non-performing assets (NPAs) for at least for two-and-a-half years and have been adequately provided for. “As part of turnaround strategy, resolution through sale of accounts remains a key option for the bank,” he said.

Banks under PCA must plan a turnaround strategy to recover bad loans, reduce risky loans and strengthen capital base to improve their balance sheets, while being restricted from branch expansion.

With a gross NPA of 19.87%, UCO Bank stands third in the list of 21 public sector banks. It is followed by IDBI Bank and Indian Overseas Bank, which are also under the PCA.

Public sector banks have a large share of stressed loans, which is currently around Rs10 trillion.

According to Saswat Guha, director, Fitch Ratings, the trend of resolution via NPA sale is in the right direction given that there is pressure now on banks from both the RBI as well as the government to clean up their books.

“This also shows that banks are focusing on reducing their stock of non-performing loans. Pricing proved to be a key impediment in the past, but it seems that there may be a positive shift in the willingness of banks to accept realistic haircuts,” he said.

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