India’s largest lender State Bank of India (SBI) is all set to auction over Rs.380 crore worth of loan defaults. A large chunk of these non-performing assets (NPAs) come from SBI’s education loan portfolio. These loans will be auctioned to the highest bidder who will receive the same rights as SBI when it comes to recovering loans from defaulters.
Total loans that are placed in default are worth Rs.389 crore, and they comprise a portfolio of 20,891 accounts. Applications are invited from asset reconstruction companies and other lenders for bidding on these loans. For outright cash payments, SBI has set the reserve price at Rs.114.6 crore. For part payment in cash and part payment in security receipts, the bank has set the reserve price at Rs.152.80 crore.
About 90% of these total loans belong to SBI’s education portfolio. In the education portfolio, public sector lenders had about 7.67% NPAs as of March 2017. This auction represents the second time that SBI is selling its education loan defaults. In 2016, SBI sold bad loans worth Rs.847 crore to Reliance Asset Reconstruction company. These loans were discounted by more than 50% during the sale process.
The government supported the decision by SBI stating that the sale of bad loans to asset reconstruction companies is in line with RBI’s guidelines. The government also noted that RBI guidelines permit the use of recovery agents to recover loans from borrowers. Despite supporting this procedure, the government advised lenders to engage in non-coercive methods for collection of education loans.
In November 2017, SBI announced that it has initiated the process of selling bad loans worth Rs.1,580 crore to other financial institutions. Non performing assets are the biggest among various problems looming over public sector banks in the country. Last month, the finance ministry revealed that total NPAs in public sector banks have crossed Rs.8.5 lakh crore.
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