ARCs are willing to offer flexibility to banks in terms of the structuring of the deals. RBI requires ARCs to make a minimum of 15% down payment to banks; ARCs are willing to strike all-cash deals. Photo: Aniruddha Chowdhury
ARCs are willing to offer flexibility to banks in terms of the structuring of the deals. RBI requires ARCs to make a minimum of 15% down payment to banks; ARCs are willing to strike all-cash deals. Photo: Aniruddha Chowdhury

Banks may sell loans in RBI’s second list to ARCs in absence of bidders

Both banks and ARCs are of the view that finding 'quality' bidders for the stressed asset accounts in RBI's second list is likely to be difficult

In the absence of suitable bidders, banks may choose to sell to asset reconstruction companies (ARCs) many of the 28 stressed loan accounts the central bank asked them to resolve by 13 December or send to bankruptcy courts for launch of insolvency proceedings.

These are the accounts in the second list of stressed assets issued by the Reserve Bank of India (RBI) in August. The first list with 12 accounts was issued in June.

ARCs are likely to cherry-pick the loans, keeping in mind the scope for resolution and complexities involved in resolving the accounts through the National Company Law Tribunal (NCLT) route.

Both banks and ARCs are of the view that finding “quality" bidders for the accounts in the second list is likely to be difficult, considering the over-supply of stressed assets. 

“Many banks are already in the market to sell the loans. Lenders are concerned about smaller accounts as interest from strategic investors will be very low for these and the final valuation is also likely to be impacted (adversely)," said Siby Antony, managing director and chief executive of Edelweiss Asset Reconstruction Co. Ltd (EARC). 

Bankers, while keen on selling the loans to cut their losses, are exercising caution with respect to the valuations. 

“There are high chances that the accounts in the second list may not see much interest from quality bidders," a senior banker at a Chennai-based public sector bank said on condition of anonymity. “Hence, banks will consider selling the loans in these accounts (to ARCs) so that they can recover more as compared to what they may recover through the IBC route. But banks will be very careful with the valuations at which they sell these loans as they may be questioned later if the loans are sold at a lower valuation than what can be recovered through resolution of accounts. Even as the haircut may be deeper if banks choose the IBC route, the fear of being pulled up later may dissuade them from selling off the loans." 

ARCs are willing to offer flexibility to banks in terms of the structuring of the deals. RBI requires ARCs to make a minimum of 15% down payment to banks; ARCs are willing to strike all-cash deals. 

“In recent times, ARCs have been willing to offer full consideration in cash upfront to the banks. It is the sole decision of the banks if they want to opt for selling in cash or opt for the security receipts route depending upon their respective provisioning and anticipated recovery so that they can also participate in the upside," said Anil Bhatia, managing director and chief executive at JM Financial Asset Reconstruction Co. Ltd.

EARC’s Antony said the other advantage that would accrue to banks through sale of loans to one or two ARCs is that it will make the resolution process more “efficient". 

“Resolution through NCLT requires a lot of legwork, which is difficult for banks to do individually. One or two ARCs can consolidate the debt and a single person can represent all the banks involved, making the resolution process more efficient," he said.

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