Banks likely to sell stressed loans in RBI’s second list to ARCs in absence of bidders
MUMBAI: In the absence of suitable bidders, banks may choose to sell to asset reconstruction companies (ARCs) many of the 28 stressed loan accounts that the central bank asked them to resolve by December 13 or send to bankruptcy courts. These are the accounts in the second list issued by the Reserve Bank of India in August. The first list with 12 accounts was issued on June 13.
Though AR Cs expect banks to sell more such loans, they are likely to cherry-pick the debt, keeping in mind the scope for resolution and complexities involved in resolving the accounts through the National Company Law Tribunal 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 in the market now to sell the loans. The lenders are concerned about the smaller accounts as interest from strategic investors will be very low for these and the final valuation is likely to be impacted (adversely),” said Siby Antony, MD and CEO of Edelweiss Asset Reconstruction Company Ltd.
After the first list of 12 large defaulters was sent to banks in June, the central bank sent a second list of 28 troubled companies in late August, accounting for ₹2 lakhcro re of bad loans, and asked them to find resolution plans by December 13 or start insolvency proceedings by December end under the insolvency and bankruptcy code (IBC).
Bankers, while keen on selling the loans to cut their losses, are exercising caution with respect to the valuation.
A senior banker a Chennaibased public sector bank said, “There are high chances that the accounts in the second list may not see much interest from quality bidders. Hence, banks will consider selling the loans in these accounts 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 sol data 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,” he said on condition of anonymity.
ARCs, on the other hand, are willing to offer flexibility to banks in terms of the structuring of the deal. Even as RBI requires AR Cs to make a minimum of 15% down payment to banks, they are willing to strike cash deals.
“In recent times, ARCs have been willing to offer full consideration in cash up front 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 A nil B hat ia, managing director and CEO at JM Financial Asset Reconstruction Co Ltd.
ARCs for the purpose of restructuring the accounts can both be bidders under the IBC resolution process as well as buyers of loan exposure, he added.
Some banks are already in the market to sell bad debts of some accounts from the first list.