Lenders approve Rs 54,884 crore worth bad loans for transfer to NARC

Lenders have finalised a list of 16 bad loan accounts that will be sent to the National Asset Reconstruction Company (NARC). A total of Rs 54,884 crore worth of non-performing assets have been identified, sources in the know of the matter told DH.

“Some of these companies that lenders have given in-principle approval to be transferred to the NARC turned NPAs way back in 2011 and 2012,” sources say. “Other cases too are being identified that could be referred to the NARC.”

While in major cases the lead lender is the State Bank of India (SBI), in few others, lead lenders are Union Bank of India (UBI), Canara Bank, IDBI Bank, Punjab National Bank (PNB), and Indian Overseas Bank (IOB).

Companies include those from the power, engineering, procurement and construction, roads, ITeS, oil & gas sectors among others. This is just the first list of companies being sent to the NARC for restructuring.

Read more: Banks begin process of restructuring of loans up to Rs 25 crore

The NARC will aggregate bad loans and transfer them to a step-down asset management company (AMC) that will manage the sale of these bad loans.

ARCs are one tool used to recover loans from companies, just like the Insolvency and Bankruptcy Code (IBC) or the erstwhile SARFESI Act.

According to the Association of ARCs, the total debt of the ARC industry amounts to Rs 29,000 crore against a capital base of Rs 9,000 crore. Bank borrowings for ARCs are 10%.

So far, bad loans are given to ARCs in the form of security receipts which in turn try to retrieve the loans.

RBI rules mandate ARCs to resolve these bad loans within five years with an extension of 8 years.

A recent study done by the central bank states that over 40% of cases as of March 2020 are more than five years old. But the ARC industry thinks it is this period that witnesses the maximum recovery.

“As per the general trend, ARC’s recovery is high during the 4-6 years period after acquisition and the recovery pace and time period depends on the resolution method,” mentions a senior official from a leading ARC.

Apart from issuing security receipts, lenders can get back their money through the insolvency process as well. Through this process, a court-approved resolution plan or liquidation order helps lenders get back their dues.