Banks list Rs 83k cr APNs for bad bank

Mumbai: Public sector banks selected 28 loan accounts to transfer to the National Asset Reconstruction Company (NARCL). Of these, the lead banks have completed the process of obtaining co-lender approval on 22 accounts with Rs 82,500 crore of loans owed. Of this amount, borrowers such as VOVL, Amtek Auto, Reliance Naval, Jaypee Infratech, Castex Technologies, GTL, Visa Steel and Wind World account for 80%.
Other large companies to be sold to NARCL include Lavasa Corporation, Ruchi Worldwide, Consolidated Construction and a few toll projects.
According to banking sources, work is progressing on several fronts to ensure that the bad bank starts its activities as soon as possible. On Wednesday, the bankers met to finalize the capital structure of the bad bank (NARCL). Sources said the company would need at least 6,000 crore in equity and debt to start operations. In terms of Reserve Bank of India (RBI) regulations, Asset Reconstruction Companies (ARCs) must pay 15% of the purchase price in cash in advance. Even if these 22 non-performing assets (NPA) were valued at 50% of the loan amount, the ARCs would have to pay more than Rs 12,000 crore to the banks. However, NARCL can raise funds itself.
Since all of these 28 loans have been fully provisioned, any consideration the banks receive will go into their bottom line as profit. Once the capital structure is finalized, the promoters will apply for a license from the RBI. The lenders have decided to ask the electricity finance companies to be the promoters, as most of the other major lenders have an interest in the existing CRAs. While all banks will hold a little less than 10% of the capital, Canara Bank and Bank of Maharashtra will hold a little more than 10% and could be granted promoter status. Most of the other big banks will contribute to the capital of the CRAs. The statutes of NARC have already been finalized. Simultaneously, the lenders are also discussing setting up the asset management company that will do the collection work. Lenders hope to complete the loan transfer to NARCL in July.
Finance Minister Nirmala Sitharaman had announced in the budget the creation of a bad bank (NARCL) to acquire NPAs from banks. NARCL was to be owned by the public sector so that lenders would have no problem selling their bad loans. NARCL would pay 15% in cash and the balance in the form of collateral receipts, which are similar to units in a mutual fund, with the consolidated bad debt being the underlying asset. The government would provide a guarantee to the guarantee receipts issued by the bad bank, which would improve their valuation.
Besides the loans having been fully provisioned, the other requirement was that each loan be greater than Rs 500 crore. In addition, loans classified as fraud or in liquidation were not eligible. Many of these large accounts are the subject of a collection procedure by the banks and the buyers have expressed their interest in these companies. Consolidation of loans will allow faster decision making by NARCL.

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