banks: Fin Min asks banks to sell at least 3 accounts to NARCL by the end of October

Mumbai: The Ministry of Finance has ordered banks to sell at least three accounts – Rainbow Papers, Mittal Corp and Company by the end of October – to the bad government-promoted bank – National Asset Reconstruction Company Ltd (NARCL), have said three people familiar with the development.

In addition, the leading banks will seek agreement from member banks to sell another 15 prequalified accounts, including

Srei Equipment and a few Future Group companies, to the wrong bank, the people said.

The sale of distressed loans was decided in a closed-door meeting held on Tuesday evening between NARCL officials and senior banking officials. Sanjay Malhotra, Secretary, Financial Services Department, chaired the meeting, which was attended by

President Dinesh Khara.

During the two-hour meeting, Malhotra asked the banks to hold a Joint Lenders Meeting (JLM) next week to consider selling at least 15 to 18 accounts to NARCL. He also ordered the banks to sell eight accounts in the first tranche and 10 accounts in the second tranche, people who attended the meeting said.

NARCL did not respond to ET’s request for comment.

The directive stems from NARCL’s failure to complete a single transaction after it had been in effect for nearly a year. The Reserve Bank of India (RBI) issued an ARC license to NARCL in October last year. According to RBI rules, an ARC must complete at least one transaction within a year of its operation. The formation of the bad bank was announced in the Union budget in February 2020.

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

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

Lenders had rejected these offers because the prices were below their expectations. During Tuesday’s meeting, the DFS Secretary directed NARCL and the banks to mutually work out the price at which the loans would be transferred to NARCL.

Upon receipt of NARCL’s binding offers, the lenders will seek approval from their credit committee to sell the loans under the 15:85 structure. Here, NARCL will pay 15% of the initial consideration and the balance of 85% will be paid in the form of Security Receipts (SR) to be paid upon recovery of the loans. Once the credit committee approves the pricing of the loans, the lead bank will hold a Swiss auction in which NARCL will have first right to match any counterbids. SR worth up to ₹30,600 crore issued by NARCL will be guaranteed by the government.

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