Union bank

ksk mahanadi power: SBI and Union Bank to conduct Swiss Challenge auction for KSK Mahanadi Power loans

and have decided to go ahead with the Swiss Challenge auction for KSK Mahanadi Power loans next week despite observations from tax authorities last week that this method is opaque, implying an unholy link between the promoters and the asset rebuilding company, people familiar with the matter said.

In the Swiss auction process, lenders first hold an NPA auction, and the bid made by the highest bidder (also known as the bidder) is set at a reserve price. Subsequently, they hold another auction, inviting bids for a price higher than the reserve price, but the main bidder will have the opportunity to match the best bid.

SBI and Union Bank have issued a tender for Rs 4,101 crore and Rs 1,773 crore respectively from ARC, which is the largest single loan auction to date.

Four ARCs – Omkara ARC, CFM ARC, Rare ARC and Invent ARC – were raided on December 8 by the income tax service which claimed that the Swiss method of contesting the sale of loans is opaque in nature and that the Defaulting borrowers can regain control of their businesses by funding the ARC using the hawala road, ET reported.

Several commercial banks who spoke with ET disagreed with the allegations raised by the income tax department, but declined to be named for fear of questioning by investigative agencies. CRA industry officials also declined to comment officially.

“Right now, the fastest way to collect dues is to sell the NPA to the CRAs, as it is a transparent and time-bound process. In fact, all other mechanisms have failed, ”said a senior official at a large commercial bank. Lenders also state that the sale of NPAs to CRAs is only undertaken after exhausting all other collection options.

“Right now, the two options available for resolving troubled debts are single settlement (OTS) and selling to the CRA. The IBC is no longer an attractive option because the National Company Law Court takes at least a year for a company to be admitted to bankruptcy proceedings and an additional two years to conclude resolutions, ”observed another lender. .

An OTS would involve a haircut and give existing management a second chance to relaunch the business. Collection through the Debt Recovery Tribunal and the Securities and Reconstruction of Financial Assets and Enforcement of Securities Interest Act is also uncertain and not time bound. In fact, the positions of chair of the five debt appeal tribunals and the 15 NCLT judges are vacant, severely affecting collections for lenders.

The key claim made by the Income Tax Department centers on whether a fair process is followed by CRAs to acquire distressed loans and whether CRAs evade tax, a senior said. head of a consulting firm.

There are often differences between lenders and the ARC on the price of the loan, but banks no longer sell loans bilaterally, a senior ARC official said. The Reserve Bank of India has ordered banks to use the Swiss challenge method for selling distressed loans. Even the assets that the lenders offer to sell to the National Asset Reconstruction Company of India will go through the Swiss auction.

However, the tax raids on the four CRAs have raised concerns that banks sell loans at a throwaway price allowing the defaulter to regain control of the assets. However, lenders argue that the reserve price of loans for sale is based on the appraisal of loans by external agencies, which eliminates any possibility of subjectivity, while CRA officials say the IBC regulations prevent them. to resell the assets to the promoter.