20% Of Security ReceiptsIssued By ARCIL Were From Housing Advances
Namrata Singh | TNN Mumbai
Defaults on housing loans are said to be on the rise, with individuals facing the brunt of the high interest rate regime. An indicator of this is the fact that of the total secuity receipts (SRs) of Rs 1,100 crore issued by Asset Reconstructiion Company (India) Ltd {ARCIL} to banks between April-September 2008 for acquiring bad loans 20% were from home loan defaults.
Asset Reconstruction Companies (ARCs) expect a further jump in housing loan defaults in the coming quarters if interest rates do not climb down. Said ARCIL, managing director & CEO, S Khasnobis: "The retail loans, mainly housing loan default, form about 20% of the total SRs of Rs 1,100 crore issued by ARCIL between April-September'08. The portion of ARCIL's acquisition comprising retail loans is likely to rise given the current environment." When an ARC acquires bad debts from a bank, based on a assets, had acquired these bad loans in question from around 20 banks. While details of individual banks is not available, it is learnt that ICICI Bank's portion of the total SRs issued by ARCIL was about 30%.
According to ICICI Bank, the total value of delinquent loans sold by the bank to Arcil April 2008 onwards stands at Rs 608 crore for a sale consideration in excess of 62% of the gross loan book. However, it is not known what portion of this comprises retail loan defaults.
According to an ICICI Bank spokesman: “Sale of retail NPAs has been one of the many tools adopted by the bank to proactively manage delinquencies in the portfolio. It is a standard activity undertaken in the normal course of business by all international banks. Sometimes the sale is conducted every quarter. Also, this is only a very small portion in the overall delinquency management strategy of the bank.’’ NPAs have an adverse impact on shareholders’ value of banks and financial institutions by eroding margins. ARCs acquire distressed assets at a discount depending on the credit realisation potential of the asset.
