Videocon, Reliance Naval, Essar Power Gujarat and Coastal Energy among others in the assets transfer list
Banks have so far zeroed-in on 37 stressed assets, with exposure aggregating to about ₹92,000 crore, that can be transferred to the National Asset Reconstruction Company Ltd (NARCL), which is being set up by lenders jointly.
The assets to be transferred to NARCL include those of Videocon Industries, Reliance Naval & Engineering, and Essar Power Gujarat and Coastal Energy, according to bankers. Banks had lent to these entities as part of a consortium.
“Suppose the ₹92,000-crore exposure is transferred to NARCL at 70 per cent haircut. So, it will buy the exposure at ₹27,600 crore. Of the ₹27,600 crore, lenders will get upfront cash of 15 per cent (₹4,140 crore) and the balance (₹23,460 crore) by way of Security Receipts (SRs), which are likely to have government guarantee (partial/full),” said an executive of a state-owned bank.
The upfront cash that NARCL will give will result in provision write-back for the lenders, though it will be small.
“NARCL may buy all the loans put together at 30 per cent. But if the recovery is higher, say, 40 per cent, lenders will get the benefit via SRs,” the executive quoted above said.
He underscored that a few more Joint Lenders Forum meetings will be organised to arrive at a consensus on transferring more stressed assets.
The criteria prescribed by the Indian Banks’ Association (IBA) for the transfer of stressed assets to NARCL is that they should have been 100 per cent provided for, not be categorised as fraud, and should not be close to a resolution or recovery.
The IBA is spearheading the formation of NARCL in consultation with the Finance Ministry and the Reserve Bank of India. Stressed assets with principal outstanding of ₹500 crore and above, aggregating about ₹1.5-lakh crore, are expected to be transferred to NARCL.
Besides banks, state-owned non-banking finance companies in the power sector — Power Finance Corporation and Rural Electrification Corporation — are likely to contribute to the equity of NARCL and sell to it the stressed assets in their portfolio.
Will alter balance-sheets
NARCL may structurally alter the balance-sheets of lenders in such a way that it will further the government’s agenda of divesting its stake in IDBI Bank and privatising two public sector banks. Once chunky stressed assets are out of their books, the valuation of these banks will improve, making them more saleable, say market experts.
Finance Minister Nirmala Sitharaman, in her Budget speech on February 1, observed that the high level of provisioning by PSBs on their stressed assets calls for measures to clean up their books.
In this regard, she had said that an Asset Reconstruction Company and an Asset Management Company would be set up to consolidate and take over the stressed debt and then manage and dispose of the assets to Alternate Investment Funds (AIFs) and other investors for eventual value realisation.