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IBA may set up online platform to sell bad loans of banks

The Indian Banks’ Association (IBA) is considering setting up an online trading platform to sell bad loans of banks. This is to help banks to improve price discovery and market liquidity. V.G. Kannan, CEO of IBA, has been quoted in news reports that IBA will prepare a discussion paper as well as consult with all stakeholders including asset reconstruction companies and banks in this effort. Indian banks have together have stressed assets totaling Rs10 trillion. The news reports suggested that an online platform can double up as a bidding platform, where live auctions can be conducted, with options for the bidder to remain anonymous. This can improve the sale valuation, especially in the current scenario where banks are selling large bad loans against the earlier preference for off-loading old non-performing assets (NPAs), usually with higher provisioning, of small and mid-sized companies. The platform can work as a depository of information of various credit-related events including repayment schedule, where there was previous default, factors leading to sectoral stress, and if an exposure was sold by any bank in the past and at what valuation, among others.

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