Banks may sell stressed loan accounts to ARCs in absence of bidders

As many as 28 stressed loan accounts may be sold to asset reconstruction companies (ARCs) by banks in the absence of suitable bidders. These accounts were asked to resolve or send to bankruptcy courts for launch of insolvency proceedings by the central bank.
 
Reserve Bank of India (RBI) issued these accounts in the second list of stressed assets in August, whereas, 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, reports Livemint.
 
According to the report, 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),” Siby Antony, managing director and chief executive of Edelweiss Asset Reconstruction Co. Ltd (EARC), told Livemint. 
 
Bankers are exercising caution with respect to the valuations  and are also keen on selling the loans to cut their losses.
 
According to the report, 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,” Anil Bhatia, managing director and chief executive at JM Financial Asset Reconstruction Co. Ltd, told Livemint.