Will govt's Rs 15,300-crore guarantee to National Asset Reconstruction help tackle bad loans?


by 5paisa Research Team Last Updated: Jan 12, 2023 - 03:52 pm 621 Views

The central government has given a blanket guarantee worth Rs 15,300 crore to National Asset Reconstruction Co (NARCL), a report in The Economic Times said. 

The report said that banks will now be able to rely on government guarantees on the stop security receipts (SRs) issued by the NARCL during the liquidation.

What does the guarantee actually mean?

The guarantee gives banks the option to fall back on an instrument in case recovery is not as expected. Senior NARCL officials are already in Delhi to sign the documents and activate the guarantee, a person aware of the matter told ET.

How long will the guarantee be valid?

The guarantee will be valid for five years and will cease to exist if the resolution is not made within five years.

Is this the first time the Centre has given the NARCL a guarantee?

Not really. In 2021, the Centre had given a guarantee of Rs 30,600 crore to NARCL.

What has the NARCL done so far?

The aggregator has made bids for multiple accounts and the commercial banks are ready to transfer at least six proposals to NARCL. The biggest among these is Jaypee Infratech. It owes Rs 9,234 crore and NARCL offered Rs 3,570 crore to it for resolution.

Recently, NARCL also emerged as the highest bidder to take over two stressed entities of the Srei group as it submitted the "highest net present value bid of Rs 5,555 crore" among bidders.

NARCL's net present value bid, submitted in the 10-hour-long "challenge mechanism" conducted by the committee of creditors (CoC) on Tuesday, constitutes Rs 3,200 crore in cash, a Rs 1,000-crore jump from the previous plans offered. 

But has it been able to get into every resolution that it was fit for?

Not quite. As the ET report points out, although NARCL has a clear advantage for taking control of Srei Infrastructure Finance and Srei Equipment Finance, Authum Investment and Infrastructure, another bidder in the insolvency resolution process for the two stressed assets, was not out of the game even though it was behind marginally in the final and fifth financial challenge bidding round due to terms and conditions and legal compliance.

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