NARCL to bid for seven stressed assets worth Rs 34K cr via Swiss challenge

State-owned National Asset Reconstruction Company (NARCL) is set to initiate bidding for seven stressed assets worth Rs 34,067 crore through the Swiss challenge process, while resolution is underway or completed for three accounts worth Rs 4,842 crore, according to an internal document reviewed by Business Standard.

 

Swiss challenge is a bidding method often used in public projects, where an interested party initially submits a proposal for a contract or project. The government then publicises the project details and invites competing proposals. Upon receiving these bids, the original proposer is given the opportunity to match the best offer. If the original bidder cannot match the superior proposal, the project is awarded to the competing bidder. This method, which combines elements of both open auctions and closed tenders, allows for the discovery of the best price or solution for an asset. It fosters innovation by enabling developers to submit unsolicited proposals for new projects, without waiting for the government to initiate bidding.

 

NARCL has so far acquired 21 accounts with loan exposure of Rs 94,872 crore, which includes the acquisition of the ailing Srei Infrastructure Finance Ltd and Srei Equipment Finance Ltd as resolution applicants. Assets worth Rs 1.42 trillion are at different stages of acquisition, including Rs 38,910 crore of pending offers given by NARCL and due diligence underway of three accounts worth Rs 7,924 crore. The establishment of a government-backed company for aggregation and resolution of distressed assets will further improve liquidity and competition in the market.

 

Notably, the purchase consideration by the NARCL has been worth Rs 14,544 crore so far. This is the amount that NARCL is willing to pay to acquire non-performing assets (NPAs) or bad loans from banks and financial institutions. 

 

Sanjay Agarwal, senior director at Care Ratings, said: “Cleaning up of bank balance sheets post-AQR (asset quality review) has gained significant momentum with NARCL making large ticket acquisitions. This has enabled banks to report lowest-ever net NPA figures for the system as a whole.”

 

Incorporated in 2021, with majority stake held by public sector banks and the balance by private sector lenders, NARCL has the mandate to acquire fully provisioned stressed assets from banks. NARCL acquires stressed debt on a 15:85 cash-to-security receipts structure.

 

NARCL has been set up with a strategic initiative to clean up the legacy stressed assets with an exposure of Rs 500 crore and above in the Indian banking system. NARCL offers adaptable acquisition structures consisting of an optimal mix of cash and security receipts (SRs) to the selling banks and financial institutions across sectors and geographies. NARCL’s acquisition processes are administered by their financial asset acquisition policy framed under the guidelines for asset reconstruction companies (ARCs). NARCL’s investment strategy focuses on aggregating the stressed assets under one roof to ensure efficient resolution of such assets.

 

The SRs issued by NARCL for acquiring stressed loan assets are backed by guarantee from the Government of India. The guarantee provides NARCL a unique strategic advantage, thereby enabling easier aggregation, which is very important for value preservation and driving any resolution process. So far, government guarantee extended against 18 accounts amounts to Rs 7,617.4 crore.