NARCL makes offers for Rs 1.7 trillion debt, bags only Rs 25K crore

Lenders' reluctance to accept SRs, lengthy negotiations dragging its work, says senior exec

The reluctance of lenders to accept security receipts (SRs) 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 (NARCL), according to a senior executive.

Despite making binding offers for the acquisition of aggregated debt of Rs 1.70 trillion, the debt acquired so far is only Rs 25,000 crore, said Purshotam Agarwal, chief investment officer, NARCL. Agarwal has written an article -- All that you wanted to know about NARCL -- in ARC World, a monthly newsletter (September 2023) of the Association of ARCs in India.

Agarwal explained that lower-than-expected conversion was due to apprehensions of value mismatch in offers made by NARCL, delays in granting individual approvals, and developments in other resolution strategies, including restructuring and settlement with lenders.

The SRs issued by NARCL carry government guarantees as such resolution mechanisms to deal with a backlog of NPAs typically require a backstop facility. This increases credibility and provides for contingency buffers.

According to a government statement in September 2021, a guarantee of up to Rs 30,600 crore will back SRs issued by NARCL. The guarantee will be valid for five years.

NARCL was intended to resolve stressed loan assets above Rs 500 crore each amounting to about Rs 2 trillion. In phase I, fully provisioned assets of about Rs 90,000 crore are expected to be transferred to NARCL, while the remaining assets with lower provisions shall be transferred in phase II.

During its first year of operations, processes have been streamlined significantly. Considering the unique structure of the twin companies -- NARCL and IDRCL (India Debt Resolution Company Limited)  -- for managing the assets, 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 subsequent resolution. Public sector banks (PSBs) will maintain 51 per cent ownership in NARCL.

IDRCL, on the other hand, is a service company and operational entity which will manage the asset and engage market professionals and turnaround experts. PSBs and public financial institutions hold a maximum of 49 per cent stake; the rest is with private sector lenders.

Agarwal wrote that since inception, lenders have referred 125 accounts with debt exposure of Rs 3.5 trillion for evaluation to NARCL. Thus far, NARCL has 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. During FY23, the Reserve Bank of India allowed ARCs to submit a resolution plan under the Insolvency and Bankruptcy Code (IBC) as a resolution applicant.

Furthermore, another 30 accounts with debt exposure of Rs 70,000 crore are at different stages of evaluation.

NARCL has acquired four assets and there are two more assets in the pipeline (where letters of acceptance have been issued to NARCL after the Swiss Challenge process) with aggregated debt exposure of Rs 25,000 crore.

The success of NARCL in the timely resolution of these NBFC accounts (Kolkata-based Srei) would pave the way for an enhanced role of ARCs in the resolution of stressed assets. More collaborative opportunities would emerge for the industry, Agarwal added.

TAKING OVER
 

Accounts under NARCL resolution

> Jaypee Infratech

> Srei Infrastructure Finance & Srei Equipment Finance

> SSA International

> Helios Photo Voltaic