Identify NPAs for early sale, try e-auction: RBI to banks

Mumbai, Sep 1:

The Reserve Bank of India (RBI) on Thursday advised banks to identify Non-Performing Assets (NPAs) for sale early and go for e-auction to get better prices.

The RBI issued guidelines or framework for the banks to sell their NPAs not only to SCs (securitisation companies) or RCs (reconstruction companies), but also to other banks, NBFCs (Non-Banking Financial Companies) and financial institutions.

“In order to further strengthen banks’ ability to resolve their stressed assets effectively, it has been decided to put in place an improved framework governing sale of such assets by banks to SCs, RCs, other banks, NBFCs or financial institutions,” the RBI said in a notification.

It said the prospective buyers need not be restricted only to SCs and RCs.

Banks may also offer the assets to other banks or NBFCs or FIs, who have the necessary capital and expertise in resolving stressed assets, it said.

“All assets classified as ‘doubtful asset’ above a threshold amount should be reviewed by the (bank’s) board on periodic basis and a view is to be taken on exit or otherwise. The assets identified for exit shall be listed for the purpose of sale,” the notification said.

Early identification of stressed assets and participation of more buyers will result in better price discovery, it said.

Making a case for the banks to go for e-auctions, the RBI said that online platform will be useful in attracting a wide variety of buyers.

“An open auction process, apart from attracting a larger set of borrowers, is expected to result in better price discovery. Banks should lay down a board-approved policy in this regard,” it said.

According to the guidelines, the banks must provide adequate time for due diligence by prospective buyers which may vary as per the size of the assets, with a floor of two weeks.

Banks should have clear policies with regard to valuation of assets proposed to be sold, it said.

“It must be clearly specified as to in which cases internal valuation would be accepted and where external valuation would be needed. However, in case of exposures beyond Rs 50 crore, banks shall obtain two external valuation reports,” it added. (IANS)