Bombay : The National Asset Reconstruction Co. Ltd (NARCL) and the India Debt Resolution Co. Ltd (IDRCL), the two main components of the so-called Indian bad bank, have, together with the banks, set up a mechanism of weekly review to monitor the progress of the proposed bad debt sale exercise following the direct intervention of Union Finance Minister Nirmala Sitharaman, three people with direct knowledge of the matter said.

Operational activity accelerated significantly after Sitharaman held a review meeting in September, attended by the heads of NARCL and IDRCL, State Bank of India Chairman Dinesh Khara and senior government officials, the people quoted above said, requesting anonymity.

“Following this review in which the Minister of Finance called for faster resolution of NPAs (non-performing accounts), bankers began to meet weekly to review the process of selling unresolved distressed loans, that are currently on the banks’ books, a large number of which a large proportion are public sector lenders,” one of the people said. “These weekly meetings are attended by top bankers, including Khara. are hosted by SBI and are held virtually, with bank CEOs joining their offices, and will last approximately 45 minutes to an hour, depending on the agenda.”

The second person said the finance minister’s meeting was a trigger to start acting, and now a set of senior bankers are monitoring progress on an ongoing basis. “There was concern that the bad debt recovery process was not moving at the desired pace,” the second person said.

After months of delays, NARCL submitted bids for Jaypee Infratech, Consolidated Construction Consortium, Mittal Corp. and Meenakshi Energy, among others.

While the sale of Jaypee Infratech is expected to be the first transaction with NARCL, bankers are awaiting government guarantee to finalize the deal. NARCL will have to pay 15% of the total bid in cash and the rest in government guaranteed security receipts. Lenders sell distressed loans to asset reconstruction companies (ARCs) at a discount, either in exchange for cash or a combination of cash and security receipts. These revenues are repayable as ARC recovers the specific loan.

“We are awaiting the issuance of the government guarantee for the sale of Jaypee Infratech. The first warranty takes time because all the documentation must be closely examined. Hopefully that should happen by the end of the month,” the second person said.

Created on July 7, the NARCL aims to help stem the threat of bad debts. The banks had announced their intention to initially transfer 22 bad loan accounts from 89,000 crore to NARCL. The total amount of bad debts likely to be transferred in installments will be 2 trillion.

NARCL faced delays after the Reserve Bank of India said it was unhappy with the proposed structure. The lenders then submitted a revised proposal to the regulator.

Under the new structure approved by the regulator, NARCL will acquire and aggregate banks’ bad loan accounts, while IDRCL will manage the resolution process under an exclusive agreement.

Mint indicated earlier that from the perspective of banks it is better to sell assets to the wrong bank than to take companies to the National Company Law Tribunal (NCLT) as they will not need to be involved in the process until the very end.

Under the NCLT process, lenders are required to form a creditors’ committee, review proposed resolutions under the Insolvency and Bankruptcy Code, and take an active part in the resolution process, while selling loans to ARC does not require such involvement.

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