SBI spikes up on NPAs sale news

State Bank of India (SBI) is in the limelight today, with the stock currently at Rs.1692, up almost 2.5%, with an intra day high at Rs.1700.

The stock is reacting to the news that the largest bank of India, which is grappling with huge bad debts, announced a first-of-its-kind move to correct the situation – it plans to sell Rs.5000 crore of its Rs.67.799 crore NPAs  to Asset Reconstruction Companies (ARCs) before the end of this fiscal, which is within the next 12-13 days. ARCs pay 5-10% of the total bad loans being bought I cash and the balance is in the form of security receipts.

Other PSU banks are also expected to follow suit and some Rs.43,000 crore of bad loans are expected to be sold to ARCs  before the end of this fiscal. The total bad assets is the Indian banking system is currently at 4.1% of the total advances.

SBI's gross non-performing assets ratio in October-December quarter rose to 5.73% from 5.30% (YoY). The bank had restructured standard assets worth Rs 6100 crore during the Q3 of this fiscal and reportedly has a restructuring packages ready for loans of worth Rs 9,500 crore in Q4 too. In current Q3, its net NPA was at 3.24% v/s 2.91% in Q2 and total NPA stood at a staggering Rs.11,39,326 crore.

The rush to bring down the NPAs, using such methods, is on account of the fast approaching deadline for the new RBI diktat to kick in.  Starting FY15, provisioning on the newly restructured account has been more than doubled from current 2% to 5% while old CDR accounts would be done in a phased manner till April 2015.  It has also stated that an account after restructuring would henceforth be treated as NPA.