The bank now favors global bad loan auctions over Swiss challenges as they maximize recoveries, he added.
The target to transfer assets worth Rs 50,000 crore to the National Asset Reconstruction Company (NARCL) in FY22 is a few days behind schedule, Swaminathan J, the director of the State Bank of India (SBI) for risk capital, said. , compliance and stressed asset resolution, to Shritama. Bose. The bank now favors global bad loan auctions over Swiss challenges as they maximize recoveries, he added. Edited excerpts:
Will NARCL meet the March 31 deadline to acquire the 15 assets worth Rs 50,000 crore?
The steps that need to be done from the NARCL and the IDRCL all happen, but each process has a few days of delay. On the part of the lenders, we have kept everything ready. If NARCL and IDRCL join forces, they can still make a binding offer to the leading lenders. NARCL has issued expressions of interest and their financial and legal due diligence is almost over. The final report and binding offer are yet to come. Once that comes, the lead lenders will convene JLMs (joint lender meetings), get it approved, take up a Swiss challenge, and then do the transfer. Anyone taking up the challenge will have to come in cash. We expect the Swiss challenge process to be over soon, but if there are bidders coming in, we need to give NARCL some extra time to consider whether they want to match the bid. This will probably take a few extra days. This week we expect the offers to come in. Once they’re in, we can set up a final timeline.
Is there a feeling that IBC is not the most optimal option and that you are going to explore other avenues first?
That’s true, but even otherwise, if you look at SBI’s record, nearly 40% of our total recovery procedures have undergone normal recovery. The judicial process, including NCLT, makes up about 30-35%. About 20-25% comes from one-off or compromise settlements. I think it will stay that way, with or without IBC. But IBC would have replaced what probably would have gone to DRT. So it’s not like we’re resorting to normal recovery because IBC didn’t provide support. It is among the options along with DRT, civil courts, etc. As a commercial banker, I will only resort to legal proceedings if normal recovery is impossible.
Has the way banks and ARCs do business recently changed?
The most important change is the move to all-cash deals. Since 2019, we at SBI have favored mostly cash, and the rest of the industry has moved there over the past two years for the simple reason that the track record with SRs is extremely poor. Many of the SRs taken in FY14-16 are nearing completion and the way banks have to scale their provisions makes no sense to us to keep the SRs. The second thing we are moving towards more is open auctions. It was felt that previous ARCs showed interest in some assets based on information they had, discussions would take place, one of them would make a binding offer and then we would take it as an anchor offer and go for a Swiss challenge. But we found that the Swiss challenge doesn’t really get us the best price, as the right of first refusal available from the anchor bidder often undermines anyone else making a serious bid. We realized that it is restricting competition as the competition would not want to do the whole hog and do the due diligence knowing full well that the anchor bidder can only add Rs 1 crore to its bid and walk away with the asset. The operational teams now prefer open auctions. In some cases where we resorted to open auctions, we got a price much better than the reserve price, while in Swiss challenges our recoveries were often in and around the reserve price. Price discovery will continue to happen through Swiss challenges in line with regulatory standards, but for price maximization we are going for open auctions.
How are the restructured pools performing in the small loans?
We can put this in two buckets: Covid 1.0 during the first wave and Covid 2.0 after that. We will continue to look at them separately. Covid 1.0 shows some level of stress, but it’s no more than the NPA plus SMA percentage we’ve seen. In SMBs, 7-8% is the stress we normally see and the Covid 1.0 book shows a similar level of stress. The Covid 2.0 book is behaving quite well. It has helped many accounts not to get stressed at all.
This post We expect NARCL’s offerings to come in this week: Swaminathan J, SBI Director for Risk, Compliance and Stressed Asset Solution
was original published at “https://www.financialexpress.com/industry/banking-finance/we-expect-narcls-offers-to-come-in-this-week-swaminathan-j-sbi-managing-director-for-risk-compliance-and-stressed-assets-resolution/2467255/”