Hudco way of reducing NPA

MUMBAI, July 16: While the non-performing assets (NPAs) of banks and financial institutions have gone up substantially during 1996-97, Hous...

MUMBAI, July 16: While the non-performing assets (NPAs) of banks and financial institutions have gone up substantially during 1996-97, Housing and Urban Development Corporation Ltd (Hudco), the premier housing and infrastructure finance company owned by the Government of India has discovered an innovative way to reduce its NPA with the mere stroke of a pen.

According to the latest balance sheet of Hudco, its NPA is only a neglgible 1.2 per cent of the loans outstanding – a sort of record for a public sector unit involved in lending business. The gross NPA of Hudco as on March 1996 was Rs 660.17 crore – around 10.81 per cent of the gross loans/current asset.

The average NPA of public sector banks is around 10 per cent!

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This year the NPA figure has been brought down to 1.2 per cent after Hudco restructured certain huge default loans of state government entities. “We have restructured the loans of UP government bodies and their outstanding has become standard asset after they made a payment of Rs 80 crore to Hudco. As a financial institution, we are allowed to restructure long term loans to convert doubtful and substandard assets into standard assets,” said S Sundresan, Director (Finance) of Hudco.

It is a common practice among banks and FIs to sanction fresh loans to defaulters to make their accounts clean. Restructuring means a new package of loan issued to the defaulting state government bodies.

Hudco had approached the Reserve Bank of India (RBI) and National Housing Bank (NHB) for exempting it from the operation of prudential norms for income recognition etc.

Therefore, NHB used to make provisions only for non-government agencies and no provision was made on government defaulting agencies. In the case of banks and FIs, an account is to be classified as substandard, doubtful or loss asset if the clients default in paying interest for a certain period.

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According to a private document circulated by Hudco among merchant bankers, it has brought down the NPA figure to a mere 1.2 per cent by what the company spokesman said “restructuring” of certain long term loans given to some state government public sector units. Hudco has sanctioned loans of Rs 13,978 crore and released Rs 10,125 crore till April 1997.

As per the norms of NHB, Hudco had to make a total provision of Rs 506.50 crore last year, but it actually made a provision of Rs 25.52 crore only.

The default amount due from development authorities of Ghaziabad, Meerut and Allahabad was Rs 376.71 crore. The total borrowing of Hudco will be around Rs 4,000 crore for which a clean balance sheet is required!

Currently, Hudco is in the market with a private placement plan of Rs 500 crore unsecured bonds targetted at the public sector banks, corporate bodies and individuals.