India’s bad bank is counting on its sole bid for a non-performing asset (NPA) to avert renewal of its asset reconstruction company (ARC) licence, which is valid till June 30. The National Asset Reconstruction Company (NARCL) has written to the Reserve Bank of India (RBI) to consider its bid for loans of Rainbow Papers as a mark of operationalisation of the bad bank, people aware of the matter told FE.
NARCL was registered in July 2021. Earlier, the ARC had missed its March 31 deadline to complete acquisition of 15 assets worth Rs 50,000 crore from banks.
“NARCL has advised the RBI that since they have made the anchor bid for one account within the June 30 deadline, it should count as the beginning of the first transaction. After this, some banks may want to reevaluate the assets as it has been over six months since the JLFs (joint lenders forums) for these assets were held,” said a senior banker.
According to a June 21 report by Zee Business, NARCL has made a binding bid for Rainbow Papers’s loans worth Rs 1,136 crore to Indian Overseas Bank. FE could not immediately verify the size of NARCL’s bid.
In case the RBI chooses not to accede to NARCL’s request, the latter will have to seek an extension of the June 30 deadline.
Emails sent to the RBI and NARCL chief executive Natarajan Sundar remained unanswered till the time of going to press.
One of the bankers FE spoke to said the bad bank has made progress on a few other accounts as well in terms of completion of due diligence. “It may take another month or two to complete the first asset transfer as banks will have to carry out a process of fresh bidding for each of the accounts,” he said.
Banks are required to run Swiss challenge auctions while selling bad loans to ARCs. In NARCL’s case, the bids submitted by it will act as the anchor bids for Swiss challenges run by banks. If these auctions yield higher bids from other interested buyers, NARCL will be given a chance to match those.
Bankers say while auctions will be conducted in order to adhere to regulatory norms, they are unlikely to attract interest from other bidders. “The only way a private ARC can compete with the offers of government-backed NARCL is by putting in all-cash bids. If it’s an all-cash bid, it is more likely to be smaller than what NARCL offers through the 15:85 structure,” another banker said.
NARCL’s security receipts are sovereign-backed and thus require no additional provisioning.