Bad bank scouts for NPAs as RBI stays silent on first bid


MUMBAI : The Reserve Bank of India (RBI) has not responded to the state-backed bad bank’s request that it consider its bid for a bad asset as evidence to start operations, a person familiar with the matter said, prompting them to deal with the start evaluating more assets.

The bad bank, National Asset Reconstruction Co. Ltd (NARCL), planned to complete transactions from 50,000 crore as of March 31, but failed to complete any for procedural reasons, as bankers put it.

However, by the RBI deadline of June 30, she herself had submitted a single bid – a 1,100 crore bad loans from Rainbow Papers Ltd.

If RBI does not accept this offer as proof of operation, NARCL must apply for an extension of the license period, which it tries to avoid.

“The bad bank informed RBI late last month that the offer for Rainbow Papers was received before June 30th. She had asked whether the fact that a bid was placed before the due date could be counted as starting operations,” said the above-named person, adding that the regulator has not yet responded, which the bad bank interprets as tacit approval from RBI .

“Since RBI has not rejected the proposal, we believe the application has been approved and are therefore proceeding to evaluate other assets to be sold. However, if RBI later rejects the proposal, we would have to apply for an extension of the Asset Reconstruction Company (ARC) license,” the person said on condition of anonymity.

After the RBI deadline on June 30, NARCL made an offer for another loan, the person cited above said. However, Mint could not determine the name of the company.

Given that the bad bank has made bids for just two of the 15 assets it had earmarked for the first tranche, bankers said it would certainly be a few more months before the toxic asset transfer could take place.

They said the banks had approached their respective boards of directors seeking approval to sell the loans to NARCL at the current price the bad bank was offering. After that, they would also have to conduct a Swiss Challenge Auction in order to meet the regulatory requirements.

In the Swiss Challenge method, lenders publicly call for counter-offers to be submitted after a bidder has submitted an offer. The first offer will stand if you do not receive any counter-bids in excess of the reserve price.

However, if counter-bids exceed the reserve price, the first bidder has the opportunity to accept the highest counter-bid.

Bankers spoke out after Finance Minister Nirmala Sitharaman announced that he would set up a bad bank in February 2021 2 trillion bad loans would be gradually transferred to the company.

However, delays ensued after the Reserve Bank of India (RBI) said it was unhappy with the proposed structure. The lenders then submitted a revised proposal to the regulator.

Under the new structure approved by the regulator, NARCL will acquire and consolidate distressed credit accounts from banks while India Debt Resolution Co. Ltd will handle the settlement process under an exclusive agreement.

Emails to RBI and NARCL spokespersons went unanswered.

As the bad bank’s deals slowly move forward, lenders have already liquidated about 20% of the assets originally planned for the two-tranche transfer, Mint reported May 13. Nearly 40,000 million bad loans have been resolved since the announcement.

Mint previously reported that from the banks’ perspective, selling assets to the bad bank is better than taking companies to the National Company Law Tribunal (NCLT) because they don’t have to be involved in the process to the end.

As part of the NCLT process, lenders are required to form a creditors’ committee, consider proposed resolutions under the Insolvency and Bankruptcy Act, and actively participate in the resolution process, while the sale of loans to ARC does not require such participation.

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