North East Small Finance Bank to sell over Rs 600 crore stressed assets

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Merger-bound North East Small Finance Bank (NESFB) is looking to sell its over Rs 600 crore of stressed loans, about one-third of its loan portfolio, to Asset Reconstruction Companies (ARCs) as a step to clean up its books.


Rating agency CRISIL placed ratings for NESFB’s Tier-II bonds “under watch with developing implications”. The sale of the distressed legacy portfolio, along with highly calibrated growth in the loan book until the merger, is expected to result in some stability in asset quality over the near term, CRISIL added.


Consequently, credit costs are expected to start tapering down gradually, leading to normalisation in profitability in the normal course of business. The stressed asset comprises gross non-performing assets (NPAs) and restructured loans.


Rupali Kalita, managing director and chief executive of NESFB, did not respond to calls and messages from Business Standard.


The Reserve Bank of India has given a “No Objection Certificate” for the proposed scheme of arrangement between NESFB and Slice Group entities – Garagepreneurs Internet Pvt Ltd (GIPL), including its subsidiaries Quadrillion Finance Pvt Ltd (QFPL) and Intergalactic Foundry Pvt Ltd (IFPL). The Slice Group entities will be amalgamated into NESFB. 

 


The scheme is expected to come into effect in 9-12 months, subsequent to which only one entity, aka NESFB, will exist, subject to regulatory approvals.


The bank’s asset quality has remained weak, impacted by the pandemic outbreak and occurrence of floods in Assam (84 per cent of the gross portfolio as of 30 June 2023) and the adjacent north-eastern region. As a result, the GNPA surged from 10.9 per cent in March 2022 to 18.2 per cent as of 31 March 2023, and further to 24.9 per cent on 30 June 2023.


Profitability, constrained by elevated provisioning requirements, has remained modest over the recent past. For the financial year 2023, the bank reported a loss of Rs 213 crore vis-à-vis a loss of Rs 123 crore for the financial year 2022. For the first quarter ended June 2023 (Q1 FY24), the bank reported a loss of Rs 8 crore, CRISIL said.