The leading private sector bank, ICICI Bank has reported losses on security receipts from asset reconstruction companies (ARC). The bank registered a loss of Rs. 408 crore on such receipts compared with Rs. 231 crore year before.
ARCs pay the banks in cash or in security receipts for the latter's NPAs. The loans' annual rating results in gain or loss for the either; if the loan is downgraded, the bank makes a mark-to-market loss, else a mark-to-market profit for bank.
However analysts suggest that the bank has suffered losses on its security receipts as the bank hasn't sold its NPAs to ARCs in the past few years. The lender has reduced its investments in ARC receipts by Rs. 1,000 crore in the last year, the net investments in such receipts stood at Rs. 1,832 crore end of last fiscal.
Long term loans, mortgages are also part of security receipt portfolio; hence the true picture can't be determined. "With no sale of non-performing assets over the past two years, we expect losses to come off substantially," said a Prabhudas Lilladher analyst.
The bank however managed to grow its bottomline by 26% to Rs. 6,465 crore.