The regulatory decision to allow banks to sell fraud assets to asset reconstruction companies (ARCs) is good, but Edelweiss ARC will only buy such assets if it helps to aggregate all exposures to an asset, MD and CEO RK Bansal told Shritama Bose. While most chunky bad assets are now out of the system, there remain some assets in the roads and engineering, procurement and construction (EPC) segment where there is strong interest from strategic buyers, he said. Edited excerpts:
How is the stressed assets market doing now and how do you position yourself?
We acquire those assets where companies can operate. We do restructuring, we sometimes provide additional funding, and then, over a period of time, they are able to pay us the money along with interest. Since units were closed in the first wave of the pandemic, we got impacted due to delays in recovery for almost eight-nine months. Things started improving in August-September 2020 and continued up to March. But, the second wave came in March, though it was not as harsh on the industry as on human lives. So there was little impact on recovery. At present, 20% of our assets are retail and we want to take it to 50-50. Large assets available for sale are fewer now because most of the cases have been resolved. Whatever is left may be transferred to NARCL. Banks have not resumed lending to corporates and a few years down the line we may see a fresh round of NPAs from there.
Any traction on sale of fraud assets?
The guideline permitting sale of fraud accounts helps banks in sale of some accounts to NARCL. But it also helps us in some cases. For instance, if we have acquired 80% of an asset and there are one or two banks whose exposures are yet to be bought and one of them has classified the account as fraud, we could not have bought from them earlier. Now we can. So if at all we buy such assets, it will be only for aggregation. We’ll not buy a new case soon after it is identified as fraud.
But we still see banks putting up chunky exposures, especially roads, for sale.
There are still some assets that remain unresolved. One set is the road assets where EPC companies are involved and another is the finance or retail distribution companies. EPC companies have faced a lot of problem because of land-related delays, non-payment from government agencies, including NHAI, construction overruns. Some of them invested in real estate which caused problems for them. That sector has been mostly cleaned up as many large players have exited. Some new companies in the space are doing a good job, but some are still struggling.
However, after the government changed the rules on the hybrid annuity model (HAM), things have improved. There is now more interest in road assets because NHAI has started clearing old dues. They have even provided last-mile funding to complete some roads. As roads got completed, NHAI got its money and then lenders also started recovering their dues. Still there may be nine or 10 road assets which are in the market. There are also strategic investors who actually want to own road assets, which is why returns have improved.
How is stress in the retail and MSME space panning out?
We have started with housing loans and LAP and then gone into auto loans and commercial vehicles. We have also acquired a pool of education loans, MFI loans and also personal loans, but they are small portfolios. Majorly, we are focused on housing and LAP, with commercial vehicles being the third category. The second wave had a greater impact on individuals and small businesses. That is why NPAs increased in retail, in segments like housing, auto and credit cards. Things have improved thereafter, with salaries improving for individuals. Small businesses are still struggling to an extent. As the credit guarantee scheme expires, we may see some increase in MSME NPAs in the September and December quarters.
You must have acquired some MSME pools?
Not too many, because MSMEs are a little tricky, being neither retail nor corporate. You need a different strategy. We are discussing internally if we should have a separate team for MSME. In retail, I just have to take a security value approach. In corporate, I must understand the business. In MSME, you have to understand both security and business.