After a gap, the government has renewed guarantees of Rs 27,000 crore to the state-backed National Asset Reconstruction (NARCL) for the current financial year. 

This is set to restart the flow of non-performing loan accounts of banks to the NARCL. But the movement of bad loan accounts to the NARCL will depend on several factors, including right pricing. 

The government guarantees were delayed after expiring in the last fiscal, which resulted in delay in movement of bad debt to the NARCL. Being without guarantees, the bad-loan bank couldn’t complete the deals. 

The government had promised to allocate guarantees worth Rs 30,600 crore when the NARCL was first set up in July 2021.

“Now the bad loan flow to the NARCL will begin provided the pricing is right,” said a senior banker who has shortlisted non-performing assets (NPAs) for the NARCL.

Being armed with government guarantees may help move accounts like Jaiprakash Associates, the flagship firm of crisis-hit Jaypee Group, to the NARCL. Both ICICI Bank and State Bank of India (SBI) had applied to the National Company Law Tribunal (NCLT) seeking to start insolvency proceedings against Jaiprakash Associates but the matter is still pending. 

Jaiprakash Associates, the flagship firm of crisis-hit Jaypee Group, recently defaulted on loans worth Rs 4,044 crore, including principal amount of Rs 1,660 crore and interest amount of Rs 2,384 crore.

"The total borrowing (including interest) of the company is Rs 29,477 crore, repayable by 2037, against which only Rs 4,044 crore is overdue as on June 30, 2023," Jaiprakash Associates said.

Dharani Sugars is another account which has been shortlisted for movement to the NARCL. But this has hit the wall as the government has refused to accept the structure proposed by the bad-loan bank. SBI, which has an exclusive security over some assets of Dharani, has requested for two guarantees which the department of financial services has not found acceptable. SBI wants one security for the land parcel that it secured from the company and another for the consortium lenders. The government wants the two to be clubbed together.

The acquisition of bad loans by the NARCL has been slow so far. Several banks have expressed intent of moving their bad loan accounts to the NARCL but actual transfer has not happened. Union Bank of India recently said it has identified eight stressed accounts worth Rs 3,000 crore to be sold in the current financial year to the NARCL.

“We have sort of identified as many as 42 troubled accounts with an outstanding of Rs 10,000 crore to be sold to the NARCL. Of these, we hope to sell at least eight of them to the bad bank this fiscal,” Union Bank of India managing director and CEO A Manimekhalai had earlier said. 

SBI recently released a list of 331 stressed corporate accounts worth Rs 96,278 crore for sale to buyers. The list, circulated to asset reconstruction companies (ARCs), includes names like telecom network provider Aircel with debt worth Rs 6,978 crore owed to SBI; VOVL Ltd., which is Videocon Group's oil venture (owes Rs 5,091 crore to SBI); Videocon Industries (Rs 3,405 crore); Jaiprakash Associates (Rs 4,506.43 crore); and Future Group companies which owed debt of Rs 2,556 crore to SBI.