The sale of NPAs will result in a reduction in the GNPA level of the bank as the assets are offloaded from bank’s balance sheet and transferred to an ARC trust. Assuming an ARC paid a consideration equal to net book value; banks would get some relief on provisioning if the asset is likely to get downgraded further.
Sale of NPAs enables the bank to save time and effort on recovery, attendant litigation and help focus more on its core functions of business growth.
In accounts where there is scope for revival either through change of management, addional funding and or restructuring, ARCs are better positioned in optimizing realisations.
In a portfolio sale approach, banks get an opportunity to dispose of older-vintage NPAs along with lesser-vintage NPAs (thereby reducing the level ofstress on the balance sheet). Sale of written off accounts will improve the profits, and in turn the capitalisation of the banks.
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