Oriental Bank of Commerce, in consultation with the Reserve Bank of India, is considering two proposals to tackle the non-performing assets of Global Trust Bank, which was forced to merged with OBC by the regulator.
The first proposal is to freeze GTB's bad loans for two years under a separate accounting head, thereby not spoiling the balance sheet of OBC, which remains a sticky assets free entity.
The other proposal is to write off the NPAs and adjust the loss with current profit.
Meanwhile it is learnt that most of the bad assets belong to companies GTB's promoter-related companies.
B D Narang, chairman and managing director of OBC, said, "My objective is to maximise the internal rate of return on investment. Therefore, it will be better if most of the NPAs are set off against current profit. This will help us avail of the maximum tax benefit permissible under law."
Banking sources said that transferring the NPAs to an asset reconstruction company could help keep the balance sheet clean but no tax benefits will accrue from such a move.
Incidentally, the ministry of finance is considering a proposal to review the structure of ARCs based on a working paper submitted by the Asian Development Bank.
One of the suggestions include extending tax benefits to banks transferring their NPAs to ARCs.
Meanwhile, OBC has estimated carryforward losses of around Rs 700 crore (Rs 7 billion) in Global Trust Bank.
It is understood to have held discussions with GTB's industrial clients for faster recovery of monies. OBC auditors are also learnt to be doing a quick due diligence of the operations of GTB.
For the financial year 2003-04, OBC posted a net profit of Rs 686 crore (Rs 6.86 billion) on a capital base of Rs 193 crore (Rs 1.93 billion). Deposits amounted to Rs 35,674 crore (Rs 356.74 billion) and advances Rs 16,794 crore (Rs 167.94 billion). Total assets of the bank stood at Rs 41,007 crore (Rs 410.07 billion).
GTB , on the other hand, has a net loss of Rs 272 crore (Rs 2.72 billion) for the year ended March 2003. It is yet to furnish its balance sheet for the fiscal ended 2003-04.