In a major step towards resolving one of India’s biggest corporate debt cases, banks have successfully transferred ₹12,000 crore in stressed loans belonging to Jaiprakash Associates Ltd (JAL) to the National Asset Reconstruction Company Limited (NARCL).
This move is expected to help banks clean up their balance sheets and improve financial recovery in the coming months. According to sources, this transaction was completed with the active involvement of a consortium of 25 banks led by the State Bank of India (SBI).
Why is this Loan Transfer Important?
Jaiprakash Associates has been struggling with debt for years. The company was classified as a non-performing asset (NPA) in 2016, which means it was unable to repay its loans on time. In 2023, the company was officially admitted to bankruptcy proceedings under the Insolvency and Bankruptcy Code (IBC), signaling that the situation had worsened to the point where a legal resolution was needed.
For banks, recovering money from an NPA is always a challenge. By transferring these bad loans to NARCL, also known as the “bad bank”, lenders can offload the stress from their financial books and focus on healthier assets.
How Was the Loan Sale Structured? (15:85 Model)
The transfer of JAL’s loans to NARCL was done under the 15:85 structure, which is a commonly used method for selling bad loans. Here’s how it works:
- 15% of the transaction value is paid in cash to banks immediately.
- The remaining 85% is issued as Security Receipts (SRs), which are financial instruments that banks can redeem later based on the recovery from JAL’s assets.
In this case, banks will receive ₹1,800 crore in upfront cash, while the remaining amount will be in the form of SRs. These SRs will only yield returns if the resolution of JAL’s assets under the IBC leads to successful recoveries.
JAL’s Total Debt and Bank Exposure
Jaiprakash Associates owes a total of over ₹52,000 crore to banks, which includes penalties, overdue interest, and other charges. However, the principal loan amount given by the SBI-led bank consortium alone is about ₹14,500 crore.
Even after this loan transfer to NARCL, banks still have significant exposure to JAL. Some of the major banks with high outstanding amounts include:
- State Bank of India (SBI) – ₹15,454 crore
- ICICI Bank – ₹10,435 crore
- IDBI Bank – ₹8,706 crore
- Axis Bank – ₹3,084 crore
- Life Insurance Corporation (LIC) – ₹3,021 crore
- Canara Bank – ₹1,972 crore
- Bank of Maharashtra – ₹1,753 crore
- Punjab National Bank (PNB) – ₹1,224 crore
This means that while the recent loan transfer is a step forward, banks are still looking for a full resolution under the IBC process to maximize recoveries.
How Much Did Individual Banks Recover?
The transfer of JAL’s stressed loans to NARCL has provided some immediate recoveries for the lenders. Here’s a breakdown of the amounts received by major banks in cash and security receipts:
- SBI: ₹501 crore cash + ₹2,843 crore in SRs
- ICICI Bank: ₹270 crore cash + ₹1,550 crore in SRs
- IDBI Bank: ₹240 crore cash + ₹1,400 crore in SRs
- Axis Bank: ₹185 crore cash + ₹1,050 crore in SRs
- LIC: ₹80 crore cash + ₹450 crore in SRs
- Canara Bank: ₹107 crore cash + ₹608 crore in SRs
Most banks have participated in this transaction, but Yes Bank and DBS Bank opted not to be part of the loan transfer, sources confirmed.
What Happens Next? (IBC Resolution Process)
Even though the ₹12,000 crore loan has been transferred to NARCL, the resolution process under the IBC is still ongoing. The Committee of Creditors (CoC), which includes all banks that have lent money to JAL, is responsible for selecting a suitable buyer or restructuring plan.
The initial deadline for submitting Expressions of Interest (EOIs) was March 11, but reports indicate that the CoC may consider extending the deadline to attract more potential buyers.
The final recovery of funds will depend on how much value can be extracted from JAL’s assets. Since banks have received 85% of their dues in security receipts (SRs), these receipts will be meaningful only if the resolution process leads to significant asset recovery.
Conclusion: Banks Monitor Recovery While Awaiting Full Resolution
With the loan transfer now completed, banks are keeping a close watch on JAL’s IBC resolution process. The performance of the security receipts issued by NARCL will be a key factor in determining how much of their total dues banks will ultimately recover.
This development represents a major step towards cleaning up stressed assets in the banking sector. However, the final outcome will depend on how effectively JAL’s resolution is managed under the IBC and whether sufficient funds can be recovered from its assets.
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