Banks are continuing with their regular practice of putting up large stressed assets for sale to asset reconstruction companies (ARCs) and other investors even as the process for setting up the National Asset Reconstruction Company (NARCL) has been set in motion. The possibility of quicker and better-yielding resolutions in some assets is the reason behind this, according to bankers and other industry executives.
“We are exploring our options in cases where we think there is a possibility of achieving quicker resolution outside the NARCL. Also, many of the assets which are being canvassed separately for sale to ARCs are not part of the list of assets identified for transfer to the NARCL,” a senior executive with a mid-sized private bank said.
The process of setting up the bad bank, securing a guarantee from the government and finally getting the institution off the ground could take some time, bankers expect. In the meantime, they are trying to maximise recoveries in as many cases as possible.
KSK Mahanadi Power, Sathavahana Ispat, Srinagar Banihal Expressway, MSP Metallics, Sew Infrastructure and Coastal Energen are among the assets for which lenders are running the resolution process. There are also instances of one-time settlement deals as in the case of Jindal India Thermal Power.
Nirmal Gangwal, managing partner, Brescon & Allied Partners, said sales to ARCs and strategic investors are parallel processes and the NARCL process will be an additional one which will also come in handy. “The setting up of NARCL is an ongoing process. In the meantime, if the outlook for some sector suddenly turns positive or there is interest for an asset from an ARC or a strategic investor, bankers would like to explore whatever is good for them,” he said.
Pricing could be another reason why banks are choosing the auction route for resolution. An industry executive who spoke on condition of anonymity said that the pricing in case of transfers to NARCL will be quite low. “Banks may be getting 40-50% recovery in some of these sales, whereas in NARCL they just get 10 cents to a dollar and that too not in a full-cash deal,” the executive said.
Most deals between banks and ARCs nowadays are all-cash deals where the entire amount goes directly into the bank’s profit. “So, the NARCL is actually meant for cases where lenders are unable to find a resolution or where they feel there is a need for warehousing for some time,” the executive said.
Some cases understood to be under consideration for transfer to the NARCL list are already undergoing insolvency proceedings such as Amtek Auto, Castex Technologies, JP Infra, Videocon Oil Ventures and Lavasa Corporation.
NARCL has recently applied for a licence to the Reserve Bank of India (RBI) after raising Rs 149 crore as paid-up capital from its constituent banks. Lenders have identified 22 stressed accounts, worth around Rs 89,000 crore, to be transferred to NARCL in the first phase.