Lenders to shift ₹1L-cr assets to ‘Bad Bank’
Mumbai Joint Lenders Forum (JLF) will be meeting shortly on a virtual platform to take a call on transfer of 45 stressed assets to National Asset Reconstruction Company Ltd (NARCL).
JP Infra, GPL Ltd, Videocon, Reliance Naval, Essar Power Gujarat and Coastal Energy comprise the assets transfer list. It was confirmed with the sources familiar with the development to Bizz Buzz. The idea is to make the valuation stronger of the two PSBs which are to be disinvested by the government. Besides, the government wants to exit from the IDBI Bank. Once the balance sheet of these banks are cleaned, it will help make their valuation attractive and that may help fetch better price for the government from the bidders, the sources said. While presenting the Budget on the floor of Parliament on 01 February, Union Finance Minister Nirmala Sitharaman had observed that the high level of provisioning by PSBs on their stressed assets calls for measures to clean up their books.
The FM had added that an Asset Reconstruction Company and an Asset Management Company would be set up to consolidate and take over the stressed debt and then manage and dispose of the assets to Alternate Investment Funds (AIFs) and other investors for eventual value realisation.
So far, the bankers' discussion are on 45 stressed assets, with an exposure amounting to more than Rs 1,00,000 crore, that can be transferred to NARCL which was currently under the process of being set up by the lenders jointly.
The assets to be transferred to NARCL include those of JP Infra, GPL Ltd, Videocon Industries, Reliance Naval & Engineering, and Essar Power Gujarat and Coastal Energy. Banks had lent to these entities as part of a consortium.
Meanwhile, Padmakumar Madhavan Nair, chief general manager with State Bank of India, has been named by the government to spearhead the National Asset Reconstruction Company Ltd (NARCL), popularly known as the 'Bad Bank', which will take over the sticky loans of mainly public sector banks and was set to become operational from June.
"A total amount of more than Rs 1,00,000-crore exposure is likely to be transferred to NARCL", a senior official of a state-owned lender told Bizz Buzz on condition of anonymity.
This may come at 70 per cent haircut as the NARCL will buy the exposure at over Rs 28,000 crore. Out of this Rs 28,000 crore, lenders are likely to get upfront cash of 15 per cent and the balance by way of Security Receipts (SRs), which are likely to have government guarantee (partial/full).
The upfront cash that NARCL will give will result in provision write-back for the lenders, though it will be small.
The criteria prescribed by the Indian Banks' Association (IBA) for the transfer of stressed assets to NARCL is that they should have been 100 per cent provided for, not be categorised as fraud, and should not be close to a resolution or recovery.
The IBA is spearheading the formation of NARCL in consultation with the Finance Ministry and the Reserve Bank of India. Stressed assets with principal outstanding of Rs 500 crore and above, aggregating about Rs 1.5-lakh crore, are expected to be transferred to NARCL.
Apart from banks, state-owned non-banking finance companies in the power sector — Power Finance Corporation and Rural Electrification Corporation — are likely to contribute to the equity of NARCL and sell to it the stressed assets in their portfolio.
Earlier, while addressing a webinar which was held by Enqube Collaboration, former RBI Deputy Governor, R Gandhi welcomed the recent financial sector reforms and hoped that further Reforms will continue.
Generally, reforms are triggered by any major shock to the financial sector, change in political ideology or incremental reforms.
He also elaborated that IBC, Institutional reforms like establishing DFI, NARC, Gold Exchange GST, privatisation of two PSBs and one general insurance company, increasing the FDI limit from 49 per cent to 74 per cent in Insurance sector are the direct reforms, he had said.
Interestingly, RBI's annual report for the year 2020-21, which was released today, has a brief mention of the 'bad bank'.
"The RBI Annual Report released by RBI for FY21 other than nostalgically summarising the measures implemented last year in view of the Covid-19 pandemic challenges and other regulatory measures taken during the year also interestingly referenced a few of the highly anticipated regulatory developments to look forward to in the next FY including - the so-called 'bad bank' which is in the works as we speak (which strangely found only one reference) and comprehensive review of the regulatory framework for asset reconstruction company (ARC) framework," Tirthankar Datta, Partner, J Sagar Associates says.
