NARCL gets ₹ 15,300-crore blanket guarantee to tackle bad loans
Jan 12, 2023
Synopsis
The approval means commercial banks can now fall back on government guarantees, which will back stop security receipts (SRs) to be issued by the bad loan aggregator while taking over doubtful debt
The Centre approved a ₹15,300-crore blanket guarantee for National Asset Reconstruction Co (NARCL), clearing roadblocks for the keenly awaited transfer of doubtful advances to the state-sponsored bad bank.
The guarantee was approved after all legal and procedural formalities were completed on Tuesday, two people familiar with the process told ET.
The approval means commercial banks can now fall back on government guarantees, which will back stop security receipts (SRs) to be issued by the bad loan aggregator while taking over doubtful debt. The guarantee will be valid for five years, to be invoked in case of resolution or liquidation of the bad loan. It will cover the shortfall between the SR face value and actual realisation from the account when NARCL finds a buyer.
However, the guarantee will cease to exist if the resolution for the account is not made within five years."The guarantee gives banks the option to fall back on an instrument in case recovery is not as expected. Senior NARCL officials are already in Delhi to sign the documents and activate the guarantee," said one of the persons aware of the process. The guarantee is exactly half the Rs 30,600 crore the government had committed in 2021, and it allows NARCL to acquire multiple accounts.
Half a Dozen Deals
The Centre had set up NARCL to help clear the banking sector's stressed assets of around Rs 2 lakh crore in a time-bound manner. The bad loan aggregator has made bids for multiple accounts and banks are ready to transfer at least half a dozen proposals to the company.The largest among these accounts is Jaypee Infratech, the distressed real estate and infrastructure company that owes a clutch of lenders Rs 9,234 crore.NARCL had offered Rs 3,570 crore - the biggest to date by the government-backed bad bank.
The September offer was approved by lenders in October after no competing bids were received. Banks believe consolidation of bad debt with NARCL will insulate them from the delays and volatilities of the bankruptcy resolution process that has no certainty on closure.Jaypee Infratech, a real estate and infrastructure company, was among the initial 12 entities the Reserve Bank of India referred to the National Company Law Tribunal in August 2017, under the Insolvency and Bankruptcy Code.
[The Economic Times]
