Indian Overseas Bank To Auction INR 457-Crore NPAs From MSMEs, Expects 60 Per Cent Recovery

Indian Overseas Bank, a public sector lender, has issued an invitation for bids concerning the sale of 91 non-performing assets (NPAs) belonging to Micro, Small, and Medium Enterprises (MSMEs), totaling INR 457.28 crore. The bidding document titled ‘Transfer of NPA Loan Exposures’, the bank anticipates a minimum recovery of 60 per cent, equivalent to INR 274 crore, with 50 per cent, or INR 137 crore, expected in cash.

The outstanding loan amounts for the 91 accounts range between INR 3 crore and INR 10 crore. The bank has established a reserve price at 60 per cent of the outstanding amount, which stood at INR 457 crore as of September 30, 2023. This reserve price is structured with a 50:50 division between cash and security receipts.

Higher Cash Portion Bids Priority

Bidders are required to submit offers for the account portfolio based on a Cash 50 per cent plus Security Receipts (SR) 50 per cent basis. The bank prioritizes bids with a higher cash portion. Any excess recovery post the redemption of Security Receipts, i.e., the upside, will be shared on an 80:20 basis between the Bank and the Asset Reconstruction Company (ARC).

The bank issued a notification on November 6, inviting bids from asset reconstruction companies (ARCs), banks, NBFCs, AIFs, and small finance banks. The deadline for submission was November 14, and the online auction bidding is scheduled to commence on November 28.

Decline In MSME Gross NPAs

In a broader context, the move comes amid positive trends in MSME non-performing assets. According to data presented in Parliament by MSME Minister of State Bhanu Pratap Verma in July, gross NPAs in MSME loans by scheduled commercial banks (SCBs) witnessed a 14.3 per cent decline to INR 1.31 lakh crore for FY23 from INR 1.54 lakh crore during FY22. The Minister highlighted that MSME GNPAs in FY23 were the lowest in the past five years.

While the trend of declining GNPAs is evident, Moody’s Investors Service cautioned earlier this year that loans to SMEs still pose risks to the banking system’s asset quality. This is due to the segment’s vulnerabilities to interest rate hikes. However, the credit growth is expected to be sustained by the underlying economic growth potential.

Conclusion

The ongoing decline in MSME GNPAs underscores positive trends, while vigilance and adaptive strategies will be crucial to navigate potential challenges, especially in a landscape where SME loans continue to be sensitive to interest rate fluctuations. The banking sector's commitment to sustaining credit growth aligns with the broader economic potential, offering glimpses into a resilient and responsive financial landscape in the years to come.