State Bank of India and Union Bank of India have decided togo ahead with the Swiss Challenge auction for the KSK Mahanadi Power loans next week despite observations by income tax officials last week that this method is opaque, implying an unholy nexus between the promoters and the asset reconstruction company, said people aware of the matter.
In the Swiss auction process, lenders first hold an auction of the NPA, and the offer made by the highest bidder (also known as anchor bidder) is set at a reserve price. Subsequently, they hold yet another auction, inviting bids at higher than reserve price, but the anchor bidder will get an opportunity to match the best bid.
SBI and Union Bank have invited bids for Rs 4101 crore and Rs 1773 crore respectively from ARCs, which is the largest auction of a single loan till date.
Four ARCs – Omkara ARC, CFM ARC, Rare ARC and Invent ARC - were raided on December 8 by income tax department which claimed that the Swiss challenge method for selling loans is opaque in nature and that defaulting borrowers can regain control of their companies by funding the ARC using the hawala route, ET reported.
Several commercial banks that spoke with ET disagreed with the allegations raised by the income tax department but declined to be named on apprehensions of being questioned by investigative agencies. Officials from the ARC industry too declined to comment on record.
“At present, the quickest way to recover dues is selling NPA to ARCs since it is a transparent and time bound process. In fact, all other mechanisms have failed,” said a senior official from a large commercial bank. Lenders also say that sale of NPAs to the ARCs is undertaken only after they have exhausted all other recovery options.
“At present, the two feasible options to resolve distressed debt are one-time settlement (OTS) and sale to ARC. IBC is no longer an attractive option since National Company Law Tribunal takes at least a year to get a company admitted to bankruptcy proceedings and another two years to conclude resolutions,” observed another lender.
An OTS would involve a haircut and giving existing management a second chance to revive the company. Recovery through Debt Recovery Tribunal and Securities and Reconstruction of Financial Assets and Enforcement of Securities Interest Act is also uncertain and not time bound. In fact, the posts of chairmen of all five Debt Appellate Recovery Tribunal and 15 NCLT judges are vacant, severely affecting recoveries for lenders.
The key allegation made by the income tax department is centred on whether a fair process is followed by ARCs to acquire the stressed loans and if the ARCs are evading taxes, said a senior official from a consulting firm.
Often there is difference between lenders and ARC on pricing of the loan, but banks no longer sell loans bilaterally, a senior official from an ARC said. The Reserve Bank of India has directed banks to use the Swiss challenge method for sale of distressed loans. Even the assets that lenders propose to sell to the National Asset Reconstruction Company of India will be through the Swiss auction.
However, the income tax raids on the four ARCs raised concerns about banks selling loans at a throwaway price benefitting the defaulter to regain control over the assets. However, lenders argue that the reserve price of loans for sale is based on the valuation of loans by external agencies, which eliminates the scope for subjectivity while officials from ARC say that the IBC regulation prevents them from selling the assets back to the promoter.
Source : Economic Times
No comments:
Post a Comment