IOB set to recover 40% of education loan on sale to Reliance ARC

Mumbai: Reliance Asset Reconstruction Company (ARC), a subsidiary of Reliance Capital, is set to acquire an education loan portfolio of Indian Overseas Bank (IOB) following an uncontested Swiss auction, two people with knowledge of the matter said. Reliance ARC had offered ₹122.5 crore for an education loan portfolio of ₹306.4 crore, which triggered a Swiss challenge auction, the people said. The ARC's offer would peg a recovery of 40 paise on a rupee for the bank.

Under a Swiss auction the anchor bidder, which is Reliance ARC, has the first right to match a counter-offer received by the selling bank. Anil Ambani-owned Reliance Capital - the parent company of Reliance ARC - is undergoing insolvency proceedings with Torrent Investments and Hinduja Group in the fray to acquire the financial services company. Reliance ARC is among 20 Reliance Capital subsidiaries that would be sold under the corporate insolvency process.

IOB's education loan pool had 10,705 unsecured education accounts, classified as non-performing loans by the government-owned bank.

As per the terms of the trade, Reliance ARC agreed to pay ₹24.5 crore as cash, and ₹98 crore in the form of security receipts that will be redeemed as it recovers money from borrowers.

In effect, 20% of the consideration value is upfront payment and the balance 80% is in the form of security receipts (SR). The bank did not receive any counter offers at the auction held on February 28, one of the persons cited above said. IOB did not respond to ET's request for comment on the developmentW.

Reliance ARC has a portfolio ₹2,230 crore as on March 2022, of which the majority are retail loans, according to the company's website. Reliance Capital holds 49% stake in the ARC; Union Bank of India and Indian Bank hold 11.5% each; and Cosmea Financial Holdings and Dacecroft Ltd have 9.5% each. GIC of India holds the remaining 9% stake.

Last April, Reliance ARC acquired SME (small and medium enterprises) loan portfolio from Jana Small Finance Bank and IOB. It purchased a ₹141-crore loan book from IOB for ₹85 crore under a 25:75 structure. Here, 25% of the transaction value was paid upfront and the balance was in the form of SRs. From Jana Small Finance Bank, the ARC purchased a ₹132-crore loan at a reserved price of ₹98.6 crore under a 15:85 deal where 15% of the transaction value was paid upfront and the remaining was in the form of SRs.

Reliance Capital's committee of creditors have proposed a second round of challenge mechanism auction on March 20 after the National Company Law Appellate Tribunal approved it. However, Torrent has filed a petition with the Supreme Court objecting to lenders' holding a second auction.