Chennai: India’s largest domestic asset reconstruction firm Asset Reconstruction Co. (India) Ltd (Arcil), which buys bad assets of banks and financial institutions and recovers them, may soon auction a piece of land in Chennai worth anywhere between Rs420 crore and Rs560 crore.
When that happens, it will be the second largest land deal in this southern metro.
The piece of land belonged to the MVR Group, whose main business was cashew nut export. The group had pledged the land, around 14 acres, along with other assets to Indian Bank and a few other banks as collateral for a Rs120 crore loan in the 1990s.
In the mid-1990s, M. Varadarajulu, promoter of the group, became one of the major defaulters as Indian Bank crumbled under the piles of non-performing assets (NPAs), wiping out its equity and reserves. The Centre stepped in to infuse fresh capital in phases to keep the bank afloat.
The loan turned sour and MVR’s total liabilities rose to Rs1,000 crore. Indian Bank, which accounted for about 80% of the loan, sold the portfolio to Arcil for Rs183.26 crore last year. Typically, asset reconstruction funds buy bad loans from banks at a discount and make money by selling the assets attached to these loan accounts as collateral.
Indian Bank declined to comment, citing client privacy.
The biggest disclosed land deal in Chennai has been the sale of a church property in the Boat Club area. Nitish Estates, the real estate arm of Bangalore-based Nitish Group, paid Rs642 crore in 2007. “It (the MVR property) is a litigated piece of land and it may be sold below the market rates,” said a real estate consultant who did not want to be identified, pegging the market rate at about Rs40 crore per acre, though another believes it could be around Rs30 crore. “It is very difficult to trace the ownership of the piece of land,” the same consultant added.
There are quite a few takers for the piece of land, including the state government, an official familiar with the proposed sale, but who didn’t want to be named said. Arcil has appointed a Delhi-based law firm to clear the legal issues before selling the land, which is adjacent to Hotel Le Royal Meridien on GST Road leading to the Chennai International Airport.
The state government had announced in March that it would buy 11.02 acres from Hindustan Teleprinters Ltd, a sick company, for Rs20 crore an acre. It had assigned this piece of land to HTL in 1973 and decided to buy it after the company sold it to Bangalore-based developer RMZ Corp. for Rs328 crore, or at Rs29.68 crore an acre. This transaction is still pending.
Meanwhile, the All India Bank Employees’ Association (AIBEA) and member of Parliament R. Prabhu are not happy. “There is no transparency in the deal and there is no information on the recovery proceedings. How can they sell it for such a low value?” Prabhu asks, though it is unclear how he believes the price Arcil paid is “low.”
“Indian Bank should have waited to get a better deal for the NPA sale,” says C.H. Venkatachalam, AIBEA president. “Banks are in a hurry to sell off their NPAs to show a good balance sheet with low NPA to their investors and boost their share price.” Indian Bank declined to comment.