Mumbai, Aug. 22: Banks are clamouring for possible amortisation of losses in the sale of non-performing assets to asset reconstruction companies (ARCs), which have come up to ferret out locked up loans.

Many banks have expressed concern over the losses in the sale of impaired assets, which are likely to change hands at a heavy discount to the original price. There are scary estimates suggesting banks would lose half of the Rs 80,000-crore NPAs if they sold these to ARCs.

Officials acknowledge the fair value would turn out to be less than book value of the loan account in almost all cases, but they are worried about the adverse impact this could have on the books of banks/institutions.

To solve the problem, they have suggested amortising the loan — similar to what has been done in voluntary retirement schemes — as a way to mitigate the impact of a loss on the balance-sheet of banks. The time-frame for this could be at least five years.

Though there is general agreement that the worth of an asset to be transferred from a bank to an ARC must be based on an independent valuation, there are various options on how the price can be fixed.

While transfer at market price is an alternative, another approach being suggested is to tie it to their net book value.

Market-determined pricing, however, has emerged the most preferred way. “The valuation of assets sold by banks as well as securities with investors should be done on the basis of market pricing, on an arms length basis. Such a system would factor in all risks,” D. Thyagarajan, Crisil’s director of structured finance ratings, said.

The issue was reportedly raised before one of the working groups formed by the Reserve Bank. Of the two groups headed by a senior central bank official, one is framing norms for acquisition of assets by an ARC.

Since the promulgation of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Ordinance, two ARCs — the ICICI Bank-sponsored Asset Reconstruction Company of India and the IFCI-promoted Asset Care Enterprises — have come up.