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Bad bank sets weekly rating after FM nudge

MUMBAIA : The National Asset Reconstruction Co. Ltd (NARCL) and India Debt Resolution Co. Ltd (IDRCL), the two main parts of the so-called bad bank of India, have set up a weekly review mechanism with banks to monitor the progress of the proposed bad loan sale exercise after direct intervention by the Union Minister of Finance Nirmala Sitharaman, three people with direct knowledge of the matter said.

Operational activity increased significantly after Sitharaman held a review meeting in September, attended by NARCL and IDRCL leaders, the chairman of the State Bank of India, Dinesh Khara and senior government officials, said the above people, requesting anonymity.

“Following this review in which the Secretary of the Treasury sought a faster resolution of NPAs (non-performing accounts), bankers have begun to meet each week to take stock of the process of selling outstanding distressed loans, which are currently on the books of banks, many of which are public sector lenders,” said one of the people. “These weekly meetings are attended by top bankers, including Khara. The weekly meetings are organized by SBI and are held virtually, with bank CEOs participating from their offices. take about 45 minutes to an hour, depending on the schedule.”

The second person said the finance minister’s meeting was a trigger for action, and now a number of senior bankers are monitoring progress on a continuous basis. “There were concerns that the bad loan acquisition process was not proceeding 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 will be the first transaction with NARCL, bankers are waiting for the government guarantee to complete the deal. NARCL will have to pay 15% of the total bid in cash upfront and the rest as government-guaranteed certificates. Lenders sell stressed loans to asset reconstruction companies (ARCs) at a discount, in exchange for cash or a combination of cash and collateral receipts. These receipts are redeemable once the ARC recovers the specific loan.

“We are awaiting the issuance of the government guarantee for the Jaypee Infratech sale. The first warranty takes time because the entire documentation must be examined closely. Hopefully this will be by the end of the month,” said the second person.

Founded on July 7, NARCL aims to help curb the threat of bad debt. Banks had announced plans to initially open 22 bad loan accounts from 89,000 crore to the NARCL. The total amount of bad loans likely to be transferred in tranches is: 2 trillion.

NARCL was delayed after the Reserve Bank of India said it was not happy 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 merge bad loan accounts from banks while IDRCL will handle the settlement process under an exclusive arrangement.

Mint previously reported that from the banks’ perspective, it’s better to sell assets to the bad bank rather than take companies to the National Company Law Tribunal (NCLT), as they don’t have to be involved in the process until the very end. .

Under the NCLT process, lenders are required to form a committee of creditors, review resolution proposals under the Insolvency and Bankruptcy Code, and actively participate in the resolution process, while selling loans to ARC does not require such involvement.

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