NARCL progress hit on government guarantee delay

Renewal of federal guarantees, which expired last fiscal, is delaying the takeover of bad loans by the state-backed National Asset Reconstruction (NARCL), said people familiar with the stressed-assets aggregator’s operations. Bankers said without the guarantee, the NARCL cannot complete the deals, some of which have been pending since July last year. The government is pushing banks to offer more loans for sale to NARCL.

“The government guarantee is what separates NARCL from other bad loan aggregators but it is also a major cause for delays. The guarantee which was issued last fiscal is not valid this fiscal and has to be revalidated in this fiscal and that process has resulted in many deals getting stuck even as we have already lost a month of the new year,” said a person familiar with asset transfers.

NARCL CEO N Sundar and a finance ministry spokesperson did not reply to ET’s request for comments. In January, the Centre approved a Rs 15,300-crore blanket guarantee for the NARCL, clearing a major roadblock for the keenly awaited transfer of doubtful advances to the state-sponsored bad bank. The guarantee, valid for five years, is to be invoked by banks in case of resolution or liquidation of the bad loan. It will cover the shortfall between the face value of security receipts issued and actual realisation from the account when NARCL finds a buyer.

So far, banks have completed the transfer of Rs 9,234 crore of Jaypee Infratech, the Rs 614 crore transfer of solar company Helios Photovoltaic and Rs 530 crore deal of rice exporter SSA International.

However, there are at least half a dozen other companies like the software company Rolta India, which owes lenders Rs 5,712 crore, Dharani Sugars, which owes lenders Rs 619 crore, and Rainbow Papers that owes banks Rs 1,136 crore.

“Some of these accounts have been awaiting completion for almost a year now with Rainbow Papers, for example, in limbo since July last year when the NARCL made its offer for the first time.

“The guarantee is a big issue no doubt but the fact of the matter is that NARCL has taken too long to conduct due diligence and make concrete offers,” said a person familiar with the matter. “And even when they have made offers, those have been too little for banks to take a call which has meant an unecessary back and forth. All these factors have jeapordised the NARCL idea.”Delays in the government guarantee renewal are the latest among the challenges facing the bad bank that started operations in January 2022.

In fact, State Bank of India (SBI) chairman Dinesh Khara had announced that banks had agreed to transfer 38 NPA accounts worth Rs 82,845 crore to the NARCL, 15 of which worth Rs 50,335 crore were to be transferred before the end of fical 2022.

More than a year after the deadline expired, only about Rs 10,000 crore of accounts have been transferred, a far cry from Rs 82,845 crore target set by banks.

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