NARCL Bids Rs 1.7 Tn Debt But Secures Just Rs 25 Bn
National Asset Reconstruction Company (NARCL) is facing challenges due to lenders' hesitation with Security Receipts (SRs) and extended negotiation periods for the valuation of stressed loans.
According to reports, despite making binding offers for the acquisition of aggregated debt totaling Rs 1.70 trillion, NARCL has only acquired Rs 25,000 crore in debt so far. Purshotam Agarwal, Chief Investment Officer of NARCL, outlined these challenges in an article for ARC World, the monthly newsletter of the Association of ARCs in India.
Agarwal explained that the lower-than-expected conversion is attributed to concerns about value discrepancies in offers made by NARCL, delays in obtaining individual approvals, and developments in other resolution strategies like restructuring and settlement with lenders.
The SRs issued by NARCL are backed by government guarantees, providing credibility and contingency buffers for resolution mechanisms dealing with a backlog of NPAs.
A government statement in September 2021 guaranteed up to Rs 30,600 crore for SRs issued by NARCL, valid for five years.
NARCL was established to resolve stressed loan assets exceeding Rs 500 crore, totaling about Rs 2 trillion. In Phase I, fully provisioned assets of about Rs 90,000 crore are set to be transferred to NARCL, while assets with lower provisions will be transferred in Phase II.
During its initial year of operation, processes have been significantly streamlined. Given the unique structure of the twin companies, NARCL and IDRCL (India Debt Resolution Company Limited), it took time to establish systems and procedures supporting the workflow.
NARCL was formed by banks to aggregate and consolidate stressed assets for subsequent resolution. Public sector banks will maintain 51 percent ownership in NARCL.
IDRCL, as a service company and operational entity, will manage the asset and engage market professionals and turnaround experts. PSBs and public financial institutions hold a maximum of 49 percent stake, with the rest owned by private sector lenders.
Agarwal noted that since its inception, lenders have referred 125 accounts with a debt exposure of Rs 3.5 trillion for evaluation to NARCL. To date, NARCL has submitted binding offers in 30 accounts with a debt exposure of Rs 1.70 trillion after a due diligence process.
This includes two accounts with a debt exposure of Rs 32,000 crore as a resolution applicant. Additionally, another 30 accounts with a debt exposure of Rs 70,000 crore are at various stages of evaluation.
NARCL has acquired four assets, and there are two more assets in the pipeline with an aggregated debt exposure of Rs 25,000 crore.
The successful resolution of these NBFC accounts, particularly Kolkata-based Srei, would pave the way for an expanded role of ARCs in the resolution of stressed assets, creating more collaborative opportunities for the industry, Agarwal added.
