Indian Overseas Bank Seeks To Dispose Of MSME NPA Loans Worth Rs 457 Cr
Indian Overseas Bank has issued an invitation for bids on the sale of 91 non-performing assets (NPAs) belonging to micro, small and medium enterprises (MSMEs), totaling Rs 457.28 crore. The bid document outlines the bank's expectations of a minimum 60 per cent recovery, amounting to Rs 274 crore, with 50 per cent in cash (Rs 137 crore). The reserve price, set at 60 per cent of the outstanding Rs 457 crore as of 30 September 2023, is divided equally between cash and security receipts.
These NPAs are spread across 91 accounts, each carrying a loan amount ranging from Rs 3 crore to Rs 10 crore. Bidders are required to submit offers based on a Cash 50 per cent plus Security Receipts (SR) 50 per cent basis, with preference given to higher cash portions. Any excess recovery beyond the redemption of Security Receipts will be shared by the bank and Asset Reconstruction Companies (ARCs) on an 80:20 basis.
The bank initiated the bidding process on 6 November, inviting participation from asset reconstruction companies, banks, non-banking financial companies (NBFCs), alternative investment funds (AIFs) and small finance banks. The submission deadline was 14 November and the online auction is scheduled to commence on 28 November.
In July of the current year, MSME Minister of State Bhanu Pratap Verma reported a 14.3 per cent decrease in gross NPAs in MSME loans by scheduled commercial banks for FY23, amounting to Rs 1.31 lakh crore, down from Rs 1.54 lakh crore in FY22. The minister highlighted that MSME gross NPAs in FY23 were the lowest in the past five years.
Despite this decline, Moody’s Investor Services cautioned earlier in the year that loans to small and medium enterprises (SMEs) still pose risks to the banking system's asset quality due to the segment's vulnerability to interest rate fluctuations. However, the overall credit growth is expected to be supported by the economy's underlying growth potential.
Specifically, under the Emergency Credit Line Guarantee Scheme (ECLGS), which provided emergency credit to MSMEs post-Covid and was valid until March of the current year, NPAs amounted to Rs 13,233 crore as of 30 June 2023. This constituted 5.45 per cent of the total MSME loan amount of Rs 2.42 lakh crore guaranteed under ECLGS, according to data shared by Bhagwat Karad, Minister of State in the Finance Ministry.
