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April 1, 2023


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Bad bank sets up weekly review after FM nudge

3 min read

MUMBAI : The National Asset Reconstruction Co. Ltd (NARCL) and India Debt Resolution Co. Ltd (IDRCL), the two key constituents of India’s so-called bad bank, have, along with banks, set up a weekly review mechanism to monitor progress of the proposed bad loan sale exercise following direct intervention by Union finance minister Nirmala Sitharaman, three people with direct knowledge of the matter said.

Operational activity picked up pace substantially after Sitharaman held a review meeting in September, which was attended by the chiefs of NARCL and IDRCL, State Bank of India chairman Dinesh Khara and senior government functionaries, the people cited above said, requesting anonymity.

“Following this review in which the finance minister sought faster resolution of NPAs (non-performing accounts), bankers have begun meeting every week to take stock of the sale process of unresolved distressed loans, which currently sit on the books of banks, a large chunk of which are public sector lenders,” one of the people said. “These weekly meetings are attended by top bankers, including Khara. The weekly meetings are arranged by SBI and are conducted virtually, with bank CEOs joining from their offices. These typically last for about 45 minutes to an hour, depending on the agenda.”

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The second person said the finance minister’s meeting was a trigger to begin action, and now, a set of senior bankers are monitoring the progress on an ongoing basis. “There were concerns that the bad loan takeover process was not moving at the desired pace,” the second person said.

After months of delays, NARCL has submitted bids for Jaypee Infratech, Consolidated Construction Consortium, Mittal Corp. and Meenakshi Energy, besides others.

While the sale of Jaypee Infratech is set to be the first transaction with NARCL, bankers are awaiting the government guarantee to finalize the deal. NARCL will have to pay 15% of the total bid in upfront cash and the rest as security receipts guaranteed by the government. Lenders sell stressed loans to asset reconstruction companies (ARCs) at a discount, either in exchange for cash or a mix of cash and security receipts. These receipts are redeemable as and when the ARC recovers the specific loan.

“We are waiting for the government guarantee to be issued for the Jaypee Infratech sale. The first guarantee is taking time because the entire documentation has to be closely looked at. Hopefully, this should come by the end of the month,” the second person said.

Set up on 7 July, NARCL is aimed to help curb the bad debt menace. Banks had announced plans to initially transfer 22 bad loan accounts of 89,000 crore to the NARCL. The aggregate amount of bad loans likely to be transferred in tranches will be 2 trillion.

NARCL suffered delays after the Reserve Bank of India said it was unhappy with the proposed structure. Lenders then presented a revised proposal to the regulator.

Under the new structure approved by the regulator, NARCL will acquire and aggregate bad loan accounts from banks, while IDRCL will handle the resolution process under an exclusive arrangement.

Mint earlier reported that from the banks’ perspective, it’s better to sell assets to the bad bank instead of taking companies to the National Company Law Tribunal (NCLT) since they won’t need to be involved in the process till the very end.

Under the NCLT process, lenders are required to form a committee of creditors, vet resolution proposals under the Insolvency and Bankruptcy Code, and take an active part in the resolution process, while selling loans to ARC needs no such involvement.

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