Month: June 2021

Public sector banks have shortlisted 28 loan accounts to be transferred to the National Asset Reconstruction Company (NARCL). Of these, lead banks have completed the process of obtaining approval from co-lenders in 22 accounts with Rs 82,500 crore of loans due. Within this amount, borrowers such as VOVL, Amtek Auto, Reliance Naval, Jaypee Infratech, Castex Technologies, GTL, Visa Steel and Wind World account for 80%.

Other large companies that are to be sold to the NARCL include Lavasa Corporation, Ruchi Worldwide, Consolidated Construction and a few toll projects.

According to banking sources, work is progressing on multiple fronts to ensure that the bad bank starts operations as soon as possible. On Wednesday, bankers met to finalise the capital structure of the bad bank (NARCL). Sources said that the company would need at least Rs 6,000-crore capital of equity and debt to start operations. In terms of Reserve Bank of India (RBI) regulations, asset reconstruction companies (ARCs) must pay 15% of the purchase consideration in cash upfront. Even if these 22 non-performing assets (NPAs) were valued at 50% of the loan amount, the ARCs would have to pay over Rs 12,000 crore to banks. The NARCL can, however, raise money on its own.

Since all these 28 loans have been fully provided for, any consideration that the banks receive will go into their bottom line as profit. Once the capital structure is finalised, the promoters will seek a licence from the RBI. Lenders have decided to ask power finance companies to be the promoters as most other large lenders have a stake in existing ARCs. While all banks will hold just below 10% stake, Canara Bank and Bank of Maharashtra will hold just over 10% and may be given promoter status. Most other large banks will contribute to the ARCs’ equity. The articles of association of the NARC have already been finalised. Simultaneously, lenders are also discussing the setup of the asset management company that will do the recovery work. Lenders are hopeful of completing the loan transfer to the NARCL in July.

Finance minister Nirmala Sitharaman had announced in the Budget the setting up of a bad bank (NARCL) to acquire the NPAs from banks. The NARCL was to be in the public sector so that lenders do not have any problems in selling their bad loans. The NARCL would pay 15% in cash and the balance in security receipts, which are similar to units in a mutual fund with the consolidated bad loan being the underlying asset. The government would provide a guarantee to the security receipts issued by the bad bank, which would improve their valuation.

Besides the loans having been fully provided for, the other requirement was that each loan should be above Rs 500 crore. Also, loans that were classified as fraud or were in the midst of a liquidation process were not eligible. Many of these large accounts are undergoing recovery proceedings by banks and buyers have shown interest in these companies. The consolidation of loans will enable faster decision-making by the NARCL.