Union Bank Expects All Standard Assets Under SDA And S4A To Turn Sour

Union Bank of India has already recognised its exposure to Totem Infrastructure Ltd., accused of a Rs 1,394 crore bank fraud, as a non-performing asset and made provisions for it.

The infrastructure and construction firm owes the state-owned lender about Rs 350 crore, Union Bank’s Managing Director and Chief Executive Officer Rajkiran Rai G told BloombergQuint in an interview. The account had turned NPA in March 2012, he added.

The Central Bureau of Investigation yesterday booked the Hyderabad-based company for allegedly defrauding a consortium of eight banks to the tune of over Rs 1,394 crore, registered on the basis of a complaint from Union Bank, newswire agency PTI reported.

Asset Quality Concerns

The lender almost all its standard assets under Strategic Debt Restructuring and Scheme for Sustainable Structuring of Stressed Assets to turn sour in the fourth quarter of the current financial year, leading to a worsening of asset quality.

The Reserve Bank of India, in its Feb 12 circular, put in place a new stressed asset framework reliant on the new bankruptcy law to resolve stressed assets and did away with existing schemes such as SDA, S4A and CDR.

Union Bank had Rs 4,500 crore worth of standard assets under the SDR and S4A as of Dec. 31, 2017. Of this, Rs 2,000-2,500 crore are from the thermal power sector.

Rai expects some forbearance on recognition of these loans as power producers struggle with coal shortages and the lack of longer-term or medium-term power purchase agreements. That’s prompted the power ministry to seek easier resolution norms for stressed assets in the sector after an industry lobby group voiced concerns that the new framework could push producers towards bankruptcy.