The lenders'reluctance to accept security receipts and the time taken in negotiation in connection with the valuation of stressed loans have impacted the work of the National Asset Reconstruction Company Limited, according to a senior executive.
Despite making binding offers for the acquisition of an aggregated debt of Rs. 1.70 trillion, the debt acquired so far is only Rs. 25,000 crore, said NARCL's chief investment officer, Purshotam Agarwal. Agarwal said lower-than-expected conversion was caused by apprehensions of value mismatch in NARCL's offers, delays in granting individual approvals, and developments in other resolution strategies, including restructuring and settlement with lenders.
NARCL's SRs carry government guarantees, as such resolution mechanisms to deal with a backlog of NPAs typically require a backstop facility. This enhances reputation and provides for a contingency buffer.
In a statement to the prime minister in September 2021, the government said a guarantee of Rs 30600 crore would back SRs issued by NARCL. The guarantee is valid for five years.
NARCL was intended to solve stressed loan assets over Rs 500 crore each, amounting to about Rs 2 trillion. At phase I, fully furnished assets of about 90,000 crore are expected to be transferred to NARCL, while the remaining assets with lower provisions will be transferred in phase II.
The first year of operations has been significantly streamlined. When considering the unique structure of the twin companies, NARCL and IDRCL, it took time to put systems and procedures in place to support the workflow process.
NARCL has been set up by banks to aggregate and consolidate stressed assets for final resolution. The public sector banks will retain 51 percent of the holdings in NARCL.
In addition, IDRCL is a service company and operational entity that will manage the asset and engage market professionals and turnaround experts. PSBs and public financial institutions hold a maximum of 49 per cent of the assets, the rest is with private sector lenders.
Since inception, lenders have referred 125 accounts with debt exposure of Rs 3.5 trillion for NARCL's review, Agarwal said. NARCL has now submitted binding offers in 30 accounts with debt exposure of Rs. 1.70 trillion after a due diligence process. They include two accounts with debt exposure of Rs 32,000 crore as a resolution applicant. The Reserve Bank of India allowed ARCs to submit a resolution plan under the Insolvency and Bankruptcy Code in FY23 as a resolution applicant.
In addition, another 30 accounts with debt exposure of Rs 70,000 crore are at different stages of assessment.
The company has acquired four assets and there are two more assets in the pipeline, with an aggregated debt exposure of Rs 25,000 crore.