NARCL to take over its 1st bad loan this week

Mumbai: Lenders will transfer this week their Jaypee Infratech loans to the government-sponsored bad bank — the National Asset Reconstruction Company (NARCL). This is the first non-performing asset (NPA) to be acquired by NARCL and will formally kick off its bad debt-consolidation exercise.
According to bankers, there were issues regarding the format of the government guarantee for the security receipts to be issued by NARCL to the banks. This has been sorted out and the transaction is expected to be concluded soon.
FM Nirmala Sitharaman had proposed the setting up of a bad bank in her Union Budget of 2021. However, the process got delayed due to the constitution of the ARC and subsequently in acquiring assets as banks were reluctant to sell bad loans at a very low price as that would require additional provisions.The Jaypee Infratech deal will result in the transfer of Rs 9,234 crore of stressed loans. The NARCL had offered a Rs 3,570-crore bid for the loans held by public sector banks, which would mean a recovery of close to 40% for the lenders.
The NARCL plans to buy bad loans of about Rs 40,000 crore from public sector banks.
While the sale will not result in major gains in the bottom line of banks, it will improve their financial ratios substantially. The NARCL has an edge over other private ARCs as the security receipts that it issues in place of cash is backed by a government guarantee. And private ARCs will have to pay upfront cash to match bids made by NARCL.
NARCL has also bid for the two SREI finance companies that are facing insolvency proceedings.

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