Lenders may seek review: Banks stare at 8% recovery from first NARCL sale

India’s bad bank has offered to buy the first toxic asset at just 8% of its outstanding loan value, a deal unhappy lenders are planning to negotiate in the hope that the recovery gets better, said two bankers in the know.

According to the bankers cited above, the National Asset Reconstruction Company (NARCL) has bid about Rs 80-85 crore for Rainbow Papers, a non-performing asset which owes banks Rs 1,100 crore.

The consortium is led by Indian Overseas Bank (IOB), which is planning to hold a meeting with other member banks to take a call on the future course of action. “A meeting had been planned for last week, but that got cancelled. IOB is expected to convene another meeting where banks will decide how to go ahead with the resolution. They want to conclude it by end-August,” said one of the bankers.

Emails seeking responses from NARCL and IOB remained unanswered till the time of going to press.

According to the last available annual report for Rainbow Papers for FY18, other bankers to the company were Corporation Bank (now merged into Union Bank of India), Union Bank, Allahabad Bank (merged into Indian Bank), Axis Bank, Bank of India, Punjab National Bank and Dena Bank (merged into Bank of Baroda).

The bid for Rainbow Papers was the first one made by NARCL after repeated delays in the operationalisation of the institution. It had initially missed the March 31, 2022 deadline for acquiring 15 assets with an aggregate exposure of Rs 50,000 crore as hiring for some senior positions took time. The bad bank put in the bid for Rainbow Papers in June, ahead of the June 30 deadline for operationalisation.

Bids made by NARCL are different from those of other ARCs in the way that security receipts (SRs) to be issued by the former will be sovereign-backed. While most deals between banks and ARCs are now all-cash, the NARCL will have an upper hand, having to pay just 15% of the deal amount as upfront cash and the rest in the form of SRs.

According to a paper published as part of the Reserve Bank of India’s February 2022 bulletin, the average rate of recovery for seven bad banks in Asia and Europe ranged between 22% and 87%.

For Indian lenders, recoveries through the Insolvency and Bankruptcy Code (IBC) route have been below par of late. Recovery for financial creditors from the resolution of stressed firms under the code crashed to a record quarterly low of 10.2% of their admitted claims during the three-month period ended March 2022. At Rs 1,288 crore, the realisation for financial creditors in Q4FY22 dropped below the assets’ liquidation value  of Rs 1,316 crore for the first time, according to data from the Insolvency and Bankruptcy Board of India (IBBI).

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