In a significant move to clean up its balance sheet, Kolkata-based Bandhan Bank has announced plans to sell non-performing assets and written-off portfolios worth nearly Rs 7,000 crore through asset reconstruction companies.
Board Approval for NPA Sale
The bank's board of directors has formally considered and approved the proposal for the sale of identified NPAs and written-off portfolios, according to an official stock exchange filing. This strategic decision comes as part of the bank's ongoing efforts to strengthen its financial health and improve asset quality.
The massive portfolio up for sale comprises two distinct components totaling Rs 6,931.2 crore. The first segment involves NPAs that are more than 180 days past due, having a principal outstanding amounting to Rs 3,212.1 crore as of September 30, 2023. The second component consists of written-off loan portfolio with principal outstanding of Rs 3,719.1 crore.
Loan Portfolio Details and Sale Process
The bank clarified that the said loan portfolios primarily belong to its emerging entrepreneurs business segment. This includes group loans, small business loans, and agricultural loans under the aspiring business group category of the bank.
Bandhan Bank will employ different methods for selling these two categories of assets. For the NPA portfolio exceeding 180 days past due, the bank will use the Swiss Challenge method for bidding. This transparent process allows third parties to make better offers than the original bid received by the bank.
For the written-off loan portfolio, the bank will opt for the auction route. Both methods are designed to ensure maximum recovery value while maintaining transparency in the sale process.
Strategic Implications for Bandhan Bank
This substantial NPA sale represents one of the largest such initiatives by a private sector bank in recent times. The move is expected to significantly improve Bandhan Bank's asset quality ratios and free up capital that was previously tied up in non-performing accounts.
The timing of this decision coincides with the banking sector's increased focus on cleaning up balance sheets post-pandemic. By transferring these stressed assets to specialized asset reconstruction companies, Bandhan Bank aims to concentrate on its core lending activities while experts handle the recovery of troubled loans.
Industry analysts view this as a positive step that could enhance investor confidence in the bank's management and its approach to handling asset quality challenges. The successful execution of this sale could set a benchmark for similar transactions in the Indian banking sector.
