Following RBI's direction to banks to increase their provisioning requirements for NPAs to 70 percent by September 2010, some banks are planning to sell a portion of their bad loans.

Mumbai-based Dena and Kolkata-based UCO banks are planning sale of NPAs worth Rs. 300 crore and Rs. 100 crore respectively.

The provisioning coverage ratio (PCR) is the ratio of provisioning to gross non-performing assets. These ratios for Dena bank and UCO bank stand at 40 percent and 55 percent respectively as on September 2009.

The banks have approached eligible securitization/reconstruction companies, banks and financial institutions for sale/assignment of their non-performing assets loan accounts.

Till October, the NPA sales were lukewarm but are expected to gain momentum owing to RBI's directive on provisioning.

Industry experts reckon that bad loans around Rs.2000 crore would be sold by banks by the end of this fiscal.

"Based on the expected period of resolution of these NPAs, we felt it would be better to sell off the assets and free up capital. Some of these assets are old NPAs and are backed by collateral in the form of real estate properties in prime areas. The sale of these properties will fetch the bank good value,'' said a senior official from one of the banks selling NPAs.

Few banks that have achieved the mandated 70 percent PCR mark are also considering selling a portion of their NPAs to clean up and strengthen their balance sheets.These include Bank of Baroda, Central Bank of India, and Allahabad Bank. Industry players say that the three banks would be selling around Rs 500 crore of NPAs.

"When a bank sells its non-performing assets, it can productively deploy the sale proceeds to develop business further. However, arriving at an agreement on price is a big issue," said Mr Birendra Kumar, Managing Director and CEO, International Asset Reconstruction Company Ltd.

Witnessing a rise in bad loans, the regulator in its quarterly review in October 2009, passed a directive that PCR for banks should be at least 70 percent by September 2010. The current provisioning requirements range between 10 percent and 100 percent, depending upon the age of NPAs, the security available and the internal policy of the bank.