Fin Min asks banks to sell at least 3 accounts to NARCL by Oct-end

Mumbai: Finance ministry has directed banks to sell at least three accounts - Rainbow Papers, Mittal Corp, and Consolidated Construction Company by October end - to the government-promoted bad bank - National Asset Reconstruction Company Ltd (NARCL), said three people aware of the development.

Further, lead banks will seek consent from member banks to sell another 15 shortlisted accounts, including Jaypee Infratech, Srei Infrastructure Finance, Srei Equipment and a few Future Group companies, to the bad bank, the people said.

The sale of distressed loans was decided at a closed-door meeting held Tuesday evening between NARCL officials and senior bank officials. Sanjay Malhotra, secretary, department of financial services, chaired the meeting, which was attended by State Bank of India chairman Dinesh Khara.
During the two-hour meeting, Malhotra directed banks to hold a joint lenders' meeting (JLM) next week to consider selling at least 15-18 accounts to NARCL. He also directed banks to sell eight accounts in the first tranche and 10 accounts in the second tranche, said people who attended the meeting.

NARCL did not respond to ET's request for comments.

The directive results from NARCL's failure to close a single transaction despite being in operation for nearly a year. The Reserve Bank of India (RBI) issued an ARC licence to NARCL in October last year. As per the RBI rules, an ARC must conclude at least one trade within a year of its operation. The bad bank's formation was announced in the Union Budget in February 2020.

In the next few days, NARCL will make binding offers for Rainbow Papers, Mittal Corp and CCC.

Earlier, NARCL had offered ₹80 crore for Rainbow Papers, which has outstanding debt of ₹1,136 crore, ₹232 crore for Mittal Corp which has ₹1,587 crore debt, and ₹80 crore for CCC which has ₹2,426 crore debt.

Lenders had rejected these offers since the pricing was below their expectations. During the meeting on Tuesday, secretary DFS directed NARCL and banks to mutually work on the price at which the loans would be transferred to NARCL.

Upon receiving binding offers from NARCL, lenders will seek approval from their credit committee to sell the loans under the 15:85 structure. Here NARCL will pay 15% of the consideration upfront and the balance 85% will be paid in the form of security receipts (SR) to be payable on recovery of loans. Once the credit committee approves the pricing on the loans, the led bank will hold a Swiss auction wherein NARCL will have the first right to match any counteroffer. The SR valuing up to ₹30,600 crore issued by NARCL will have guaranteed by the government.