Mumbai National Asset Reconstruction Company Limited (NARCL) and India Debt Resolution Company Limited (IDRCL), two major constituents of India’s so-called bad banks, along with banks, have set up a weekly review mechanism to monitor the progress. The proposed bad loan sale practice followed a direct intervention by Union Finance Minister Nirmala Sitharaman, said three people with direct knowledge of the matter.
Operational activity picked up significantly after Sitharaman held a review meeting in September, which was attended by heads of NARCL and IDRCL, State Bank of India Chairman Dinesh Khara and senior government officials, the people cited above requested anonymity. Told.
“Following this review, in which the Finance Minister called for faster resolution of NPAs (Non-Performing Accounts), bankers have started meeting every week to take stock of the sale process of unresolved distressed loans, which are currently in the hands of banks. are sitting on the books, a large majority of which are public sector lenders,” said one of the people. “Top bankers including Khara attend these weekly meetings. The weekly meetings are organized by SBI and held virtually, with bank CEOs attending from their offices. It usually lasts for about 45 minutes to an hour depending on the agenda.”
The second person said the finance minister’s meeting was a trigger to initiate action, and now, a group of senior bankers is monitoring the progress on an ongoing basis. “There were concerns that the bad loan acquisition process was not moving at the desired pace,” said the second person.
After months of delay, NARCL has submitted bids for Jaypee Infratech, Consolidated Construction Consortium, Mittal Corp and Meenakshi Energy, among others.
While the sale of Jaypee Infratech is set to be the first transaction with NARCL, bankers are awaiting government guarantees to finalize the deal. NARCL will have to pay 15% of the total bid in advance in cash and the rest in the form of security receipt guaranteed by the Government. Lenders sell stressed loans to asset reconstruction companies (ARCs) at a discount, either in exchange for cash or in the form of a mix of cash and security receipts. These receipts are redeemable when the ARC recovers the specific loan.
“We are waiting for the release of the government guarantee for the sale of Jaypee Infratech. The first guarantee is taking time as the entire document has to be scrutinized. Hopefully, it should come by the end of the month,” said the second person.
Established on July 7, NARCL aims to help contain the bad loan crisis. The banks had initially announced plans to transfer 22 bad loan accounts 89,000 crore to NARCL. The total amount of bad debts likely to be transferred in installments will be 2 trillion.
NARCL faced delays after the Reserve Bank of India was unhappy with the proposed framework. The lenders then submitted a revised proposal to the regulator.
Under the new structure approved by the regulator, NARCL will acquire and collect bad loan accounts from banks, while IDRCL will handle the resolution process under a special arrangement.
Mint had earlier reported that from banks’ point of view, it is better to sell assets to a bad bank rather than taking companies to the National Company Law Tribunal (NCLT) as they would not need to be involved in the process till the very end.
Under the NCLT process, lenders are required to form a committee of creditors, examine resolution proposals under the Insolvency and Bankruptcy Code, and actively participate in the resolution process, while ARCs are required to sell loans to any such Participation is not required.
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