The Hindu Business Line : IndusInd Bank shelves `NPA take-out' plan

INDUSIND Bank Ltd has shelved its plan to take out the non-performing assets (NPAs) of financial institutions and commercial banks through a separate entity for the time being, the Executive Vice-President, Mr N. Suresh Pai, said.

IndusInd was the first private bank in the country to propose such a take-out move. Declining to detail the reasons for such postponement, Mr. Pai said, "There is no such move now".

Earlier, the bank had plans to form a joint venture with a NPA take-out specialist, which would be a separate entity from the bank as such businesses require huge risk-capital infusion.

The proposed entity was expected to be in line with the asset reconstruction company proposed by the Government with equity participation from banks and financial institutions.

Though the bank did not detail the possible partners it was in talks with, it could be mentioned that the two best-known global firms specialising in taking out

NPAs are the UK-based Abbey National Trust and the Channel Islands-based Halifax International.

Both these companies have already completed a preliminary review of the quality of NPAs in the country and have expressed optimism about turning around the assets, following their extraordinary levels of success in turning around assets in China.

Promises of high returns had attracted IndusInd and some of the foreign investors into this sector. The discounting rate applicable for such take-outs is expected to be in the region of about 20 per cent. On NPAs falling in the range of doubtful and loss assets, the discounting could be upwards of 50 per cent.

The yardstick that is being applied to these assets is the quality of the collateral backing of the NPAs.

If the collateral backing of the NPAs is of high quality, they are bound to attract low discounting rates. This is because the turnaround time for the assets is likely to involve lesser risk.

Despite the high discounting rates, the benefit of the takeout is that it would automatically result in cleaning up the balance sheet of the banks and FIs.

Currently, domestic banks were saddled with over Rs 20,000 crore of NPAs and accretion to this NPA during the last financial year alone had been in the region of about Rs 7,000 crore, banking sources said.

But these accretion figures also involve loans provided with State Government guarantee. Besides the possibility of high returns, the bankers' interest in the business of NPA turnaround was boosted by the Securitisation and Non-Performing Assets Act issued this year.

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