"ARCs have not shown much interest. Very few offers came in. Offers made were not attractive," said a bank official.
The Bangalore-based public sector bank had put a part of its NPA portfolio on the block in the fourth quarter ended March 2009. It wanted to sell against cash or cash and security receipts.
There were around 65 accounts, including some small and large corporate cases, in question. The liabilities involved are about Rs 1,000 crore (Rs 10 billion). The expected realisation was 25-30 per cent, sources said.
A chief executive of a Mumbai-based ARC said industry was in a downward cycle for more than 12 months due to moderation in demand as well as the ongoing financial crisis. This, he said, influenced the way ARCs valued assets.
The quoted prices were bound to be low as ARCs had to work more on the assets and wait more to realise value from these in the downturn, said a senior executive with another ARC.
A bank official said many defaulter units had approached for a one time settlement of dues.
The bank's gross NPAs rose to Rs 2,168 crore (1.56 per cent) at the end of March 2009 from Rs 1,273 crore (1.18 per cent) a year ago. The net NPAs went up to Rs 1,507.25 crore (1.09 per cent) from Rs 899.03 crore at the end of March 2008.
Many sectors are under stress. In particular, retail, agriculture and infrastructure have contributed in a major way to the rise in bad loans during 2008-09. The bank has treated its exposure of about Rs 350 crore (Rs 3.5 billion) to Ratnagiri Power and Gas (erstwhile Dabhol Power) as an NPA in FY-09.
An official said the bank would this year focus on NPA management, monitor asset quality on an ongoing basis and contain fresh slippages in 2009-10.
Many industrial units are under financial stress as their customers have delayed payments. They are also experiencing the effects of high commodity prices that prevailed in early 2008-09.
According to ratings agency Crisil, the slowdown in the economy and aging of loans will deteriorate banks' assets in the next two years. This, it said, would be driven by delinquency in corporate loans.
The deterioration in the asset quality of corporate loans would result from the increasing intensity of the slowdown in demand, lack of access to funding at reasonable rates, movements in foreign exchange rates and the lengthening working capital cycle, it said.
The effect of these factors on loans to small and medium enterprises would be severe, CRISIL added.