ARCs spot opportunity in written-off accounts

livemint.com:

₹10.2 trillion bad loans, showed data from the Reserve Bank of India (RBI). In its Report on Trend and Progress of Banking in India in December, RBI said the reduction in non-performing assets of state-owned banks in FY22 was primarily due to loans being written off. However, industry officials said that while written-off assets present opportunities, they are likely to adopt a pick-and-choose approach for technical write-offs, or loans where banks are still actively seeking recovery avenues.

Technical write-offs are undertaken by lenders to cleanse the balance sheets of bad debts, which are either considered unrecoverable, or where the cost of recovery may disproportionately burden lenders, according to RBI. “ARCs do not differentiate between regular bad loans and those that have been written off, provided these are technical write-offs. If it has been finally written off, the debt is no longer alive and therefore cannot be assigned to ARCs," said Pallav Mohapatra, chief executive, Asset Reconstruction Co.

(India) Ltd. Ensuring a favourable pricing for such assets is crucial as it is necessary for ARCs to have sufficient room for recovery, said Mohapatra. “Recovery from written-off accounts does present an opportunity, but as I said, the debt should be alive." The government’s ambitious recovery targets for state-owned banks are proving to be advantageous for the ARC industry.

Mint reported on 1 May that the finance ministry wants public sector lenders to recover at least ₹2 trillion from written-off loans. According to another ARC executive, if the accounts put on sale are technical write-offs, the chances of recovery are higher than those of actual write-offs. “The reason is banks would have tried for several years