Bidders for stressed assets must now reveal source of funding

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In a bid to reduce bad loans, banks led by State Bank of India (SBI) have come up with a decision that bidders for stressed assets must provide the source of their funding. In addition to revealing their source of funding, they must also provide a cheque for the bid amount in order to become eligible to participate in the bidding process.

stressed assets

A bid evaluation matrix was developed by bankers in the country, and it was agreed by all lenders at a high-level meeting last week. As per the matrix, 70% weightage is provided to quantitative measures such as cash amount provided against the bid and 30% weightage is allocated for qualitative factors such as track record of the bidder.

This matrix identifies various ways in which bids on distressed assets can be evaluated by banks. All banks that took part in the meeting have dozens of distressed assets that are facing insolvency proceedings.

With the surge in bad loans in public-sector banks across the country, banks are now coming up with new ways to protect their investments. Last month, the Insolvency and Bankruptcy Code (IBC) was amended to prevent wilful defaulters from bidding on stressed assets. This amendment prevented promoters of bankrupt companies from bidding on their own stressed assets at a cheaper price.

In the past, promoters have borrowed money from one bank and showed it to another bank as their equity contribution. Practices like these are some of the reasons why bad loans got piled up in PSU banks in India. With this new matrix in effect, it is possible for lenders to eliminate such shady practices in the industry.

Bankruptcy proceedings are currently underway for the non-performing assets of 12 large accounts in public sector banks. RBI has asked banks to resolve these bad loans as quickly as possible and take up new accounts. It was revealed last week that bad loans in the PSU banks have crossed Rs.8.5 lakh crore in the first half of the current fiscal year.

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