Wealth In Waiting

A NONPERFORMING ASSET (NPA) refers to that classification by a bank of its loans or advances which are in arrears or default from the borrower. Such a loan usually would become due when its principal or interest is not paid and the borrower is unable to pay up. Banks have both large institutional loans and retail loans typically in the ratio of 60:40. The assets mortgaged against these loans would also have a retail component in them in the form of land, buildings, apartments, residences, individual houses, to even shops and office spaces. A large chunk of such assets is today with many Indian banks in the form of repossessed properties after the borrower’s default, mortgaged with the bank and one that can be sold in the open market to recover the dues.

There are more than ₹8 lakh crore worth of stressed assets-NPAs in banks at any given point of time, with at least ₹2 lakh crore worth of assets being written off. As per estimates in FY 2021-2022, the State Bank of India (SBI) wrote off ₹19,666 crore, the United Bank of India (UBI) wrote off ₹19,484 crore, the Punjab National Bank (PNB) ₹18,312 crore, followed by other public-sector banks (PSBs) and private-sector banks. The total estimated amount written off by Standard Chartered Bank (SCB) in FY 2021-2022 is ₹1,74,968 crore. On the other hand, there is a huge demand for such distressed assets, be it from companies, real estate or even individuals, as these are at less than the usual prevailing market price. Buyers are plenty but unfortunately the information is either not easily accessible or not presented in a user-friendly manner. For example, an apartment in a well-known locality may be advertised by its khasra number and village name despite the fact that it could be a popular apartment in a locality you might want to buy in.

There are 3,000 banks and financial institutions (FIs) in the country (12 PSBs; 22 private-sector banks; 45 foreign banks; 700 non-banking financial companies or NBFCs; 1,900 cooperative banks; 200 housing finance companies, etc). However, there is no data or visibility for the stressed assets in these institutions.

As per a Reserve Bank of India (RBI) report, gross NPAs are ~6 per cent in scheduled banks. When the lending model is an arbitrage of 2 per cent to 3 per cent, is 6 per cent NPA sustainable? Are adequate efforts being made by FIs and their collection machineries to resolve and recover them, or are they simply parking them with asset reconstruction companies (ARCs) and moving on? Indian banks have a mountain of stressed assets and the pandemic has added more stress to the ongoing crisis with the value of such assets diminishing.

There is no central platform or marketplace equivalent to figure out these stressed assets even if a buyer is interested. As per the process, these financial institutions publish these sale notices in newspapers. However, there are 500-plus newspapers with 10 editions each, so 5,000 editions every day makes it difficult to run down this critical information. Further printing editions are managed locally and there is not much central visibility in respective newspapers. Neither do these ads provide exact physical location, online navigable maps or images with streetview, etc, making it extremely difficult for buyers to buy such assets worth crores of rupees in the given short span of two to three weeks mentioned in these ads.

The Indian Banks’ Association (IBA) has an ibapi.in portal in which only 12 PSBs have published so far and information published is often very close to the date of auction. There are also portals run by private players who list them for subscription fees. However, the process to look for information is disintegrated and cumbersome.

This is a huge goldmine that can be monetised. It would not only help banks with newer opportunities to deploy the extracted funds but also safeguard the interests of all of us who have reposed faith in the banking system by ensuring that a bank’s health remains fine and our monies safe. RBI had already issued guidelines for increasing the visibility of stressed assets in 2016 and maybe it should further work towards prescribing procedures to make it quicker.

FIs and banks should consider hiring third-party techno-marketing agencies to increase the reach and facilitate transactions. These assets are anyway sold at discount and paying an incentive ranging from 1 to 3 per cent would probably accelerate sale of these assets, increase the uptake from, say, 17 to 50 per cent, and lead to higher realisation of even 75 per cent.

If a bank has ₹10,000 crore worth of distressed assets, a delay in resolution and sale has a cost of ₹800 crore per year and more than ₹2 crore per day. It is logical to have an incentive of 1 per cent, say ₹100 crore, to realise that ₹10,000 crore. In addition, this new liquidity of ₹10,000 crore will provide credit to the needy and contribute to furthering India’s economic growth through investments thus triggered.

Today, banks spend on many agencies for recoveries but there seems to be little effort in marketing such assets effectively. A timely sale would ensure quicker realisation of such stressed assets and rightful monetisation. The Union finance ministry should, in collaboration with initiatives like Startup India and Digital India, work to solve this problem and create opportunities for more startups and unicorns to emerge in this important space.

RECENTLY, I CAME across an Indian startup named Hecta that seems to have cracked this space well and operates without charging any subscription fee, brokerage to the buyers, and uses technology for discovery and for enabling the transaction. The technology navigation tool is very user-friendly and data access simple. These kinds of initiatives can actually help banks quickly monetise their stressed retail assets like land, plots, buildings, apartments, homes, shops, industrial space, and even agricultural land by reaching out to that segment of the population on the lookout for such assets.

For example, in the case of Hecta, they also capture the requirements of buyers and promptly feed them relevant properties when published by banks. This kind of matching algorithm will provide more reach and more time for the buyer to take a decision. This will not only democratise access to this portfolio but will also ensure that the needy get access to such property which otherwise they may find difficult to afford, nor obtain information about their availability. Such a portfolio also includes apartments and houses available for as little as ₹5 to ₹6 lakh, which may fulfil the aspirations of someone in the lower-income group wanting to own a high-value property but at an affordable price.

The platform gives access to users to not only search for property but also helps them see the property using a drone’s eyeview of the locality, a map view and streetview. It is such kind of marketing that will excite a potential buyer. Such democratisation of access to information, backed by a view of the same, and support with paperwork will help many aspiring buyers who cannot afford a new property or to invest in such properties. It will also help banks liquidate these assets faster and at decent prices.

Our land records, registration and stamp data are already digitised and our financial institutions have adopted technology for issuing credit, payment transfers, etc. The same, if extended to collections as well, will not only democratise the process but also disseminate information on time and provide a platform to users besides increasing the uptake of assets.

Instead of selling “As Is Where Is” and “Whatever Is There Is”, banks can use new technology like drones to show the assets and their catchment online. After all, they are trying to sell high-value real estate worth in gold and not iron as scrap.

Currently, there is also no lending for these assets from the selling FIs or banks. We should understand that in most cases there was nothing fundamentally wrong with these assets; the issue was with the borrower who was actually under stress. In case the institution sells under SARFAESI 2002, buyers have to pay the piled up electricity, water, maintenance and property tax among other dues. In case of IBC 2016, it is a no-claims title with no dues. We should move towards a no-claims title and no-dues provision for SARFAESI to build the confidence of buyers.

Today, banks deploy valuers, enforcement agencies, recovery agencies, detective agencies, security agencies, e-auction providers, and resolution agencies but no marketing agencies, critical to monetising these assets with potential buyers.

The Union finance minister recently said in Rajya Sabha that a total recovery of over ₹1.32 lakh crore from written-off loan accounts was made during the last five financial years. This comes to around 13 per cent of the write-off.

There is a need on the part of the government to urgently look into the matter and bring in a policy to democratise access to such stressed assets to enable their realisation quickly. This will not only ensure the safety of our monies with banks but also unlock the opportunity for banks to lend the realised monies further.

bankingfinanceIndian economymonetisation planNPA