Indian Bank to hold second Swiss auction for Dharani Sugars' loans

Mumbai: Indian Bank is likely to launch a second Swiss challenge auction for the distressed Dharani Sugars and Chemicals account after a change in the deal structure for transferring the loans account to the National Asset Reconstruction Co Ltd (NARCL).

The change in the deal structure was necessitated after the government refused to recognise the proposal by the bad loan aggregator earlier because it had envisioned creation of two separate trusts, one of which would exclusively deal with SBI's claims, two people aware of the developments said.



The new proposed structure envisages creation of a single trust which will house the security receipts (SRs) of the account. Unlike previously, SBI's priority charge on some recoveries from the accounts will now be adjusted from the overall recoveries from the SRs whenever they are redeemed, people familiar with the changes said.

"SBI will not get a separate trust for the priority charge they hold but from whatever recoveries happen, SBI will get a higher share since the bank has special charge on some anticipated cash flows of the company," said one of the persons aware of the process.


Lead lender Indian Bank and NARCL did not reply to separate emails seeking comment till press time Wednesday.

The second Swiss auction comes almost six months after NARCL gave a binding offer of Rs 222.5 crore in early March. This offer had not received any counter in the Swiss challenge auction but the transfer to NARCL could not happen because of issues with the government guarantee to NARCL and later due to the proposed structure which was not agreeable to the government.

Chennai based Dharani Sugars owes lenders led by Indian Bank a total of Rs 619 crore. Other lenders to the distressed sugar maker include, SBI, Central Bank of India, ICICI Bank, Bank of India, IDBI Bank, Union Bank of India, South Indian Bank, Indian Overseas Bank and Federal Bank.


The offer from NARCL equates to a 36% recovery. NARCL's offer includes 15% of cash, with the balance being matched by SRs payable on recovery of loans to specific trusts formed for different accounts.

Bankers expect to launch the Swiss challenge as early as next week. Bidders have to be given three weeks to submit a counter bid, in the absence of which the account will be transferred to NARCL. Bankers are hoping to complete the transfer to the bad loan aggregator before the end of September and rekindle a much delayed process.

Banks have been frustrated by the delays in operations of the bad bank which was envisaged as a one stop solution to clear large non performing asset (NPA) accounts above Rs 500 crore.

The NARCL which started operations in January 2022 is a unique government-led initiative to clear banks of NPAs but has been saddled with delays from poor offers which banks refused to accept, followed by a long delay in receipt of government guarantee on security receipts (SRs) which finally came only in January 2023.

So far, banks have completed the transfer of only three accounts to NARCL, the Rs 9,234 crore Jaypee Infratech debt, Rs 614 crore transfer of solar company Helios Photovoltaic and Rs 530 crore deal of rice exporter SSA International.