Government-owned asset reconstruction company, the National Asset Reconstruction Co (NARCL), has reportedly offered to purchase approximately ₹1,100 crore in loans of Parenteral Drugs (India) from the State Bank of India (SBI) and Punjab National Bank (PNB). The offer has prompted a Swiss challenge auction, as per two individuals familiar with the matter.
As part of the resolution process, NARCL has offered to buy the loans of Parenteral Drugs for ₹45 crore against a claim of ₹1,173 crore that SBI and PNB have filed with the resolution professional, according to a notice issued by the lenders to other asset reconstruction companies (ARCs).
Parenteral Drugs was admitted to the National Company Law Tribunal (NCLT) for corporate insolvency in February 2023. Since then, the company has been undergoing insolvency proceedings. NARCL’s offer to purchase Parenteral Drugs’ loans comes as part of the Insolvency and Bankruptcy Code (IBC) resolution process, which seeks to resolve the debt crisis of companies and recover the maximum value from their assets.
NARCL was set up by the government in August 2021 to help banks and financial institutions offload their non-performing assets (NPAs) to enable them to focus on their core business. The creation of NARCL was a response to the rising problem of NPAs and bad loans in the Indian banking sector, which has been a major concern for the government.
The Swiss challenge auction process allows the other asset reconstruction companies (ARCs) to either match NARCL’s offer or submit a better offer for the loans of Parenteral Drugs. This process is designed to ensure transparency and encourage fair competition among ARCs in acquiring the bad loans of companies undergoing insolvency proceedings.
Parenteral Drugs is a pharmaceutical company that specializes in manufacturing sterile products. Its products include intravenous fluids, dialysis fluids, and parenteral nutrition products. The company has faced financial difficulties in recent years, leading to the insolvency proceedings that it is currently undergoing.
The IBC was enacted in 2016 to provide a time-bound and effective mechanism for resolving insolvencies and bankruptcies. Under the IBC, companies that default on their loan repayments can be put under insolvency proceedings, and a resolution plan can be prepared to revive the company or sell its assets to recover the dues.
To recover these dues, the lenders had initiated insolvency proceedings against Parenteral Drugs under the Insolvency and Bankruptcy Code (IBC). The case was admitted by the National Company Law Tribunal (NCLT) in February 2023, and a resolution professional was appointed to manage the affairs of the company. However, the effectiveness of the ARCs in resolving bad loans has been mixed, and there have been concerns about their ability to recover the dues. The creation of NARCL is seen as a step towards addressing these concerns and improving the effectiveness of the asset reconstruction process.
The offer from NARCL to purchase Parenteral Drugs’ loans is a positive development for the company and its creditors, as it will help to recover some of the outstanding debt and resolve the insolvency proceedings. The acquisition of the loans by NARCL would also be beneficial for the banking sector, as it would help to reduce the burden of bad loans on the banks and improve their balance sheets.
Overall, the offer by NARCL to acquire Parenteral Drugs’ loans is a positive development for the Indian financial system, as it demonstrates the government’s commitment to resolving the issue of bad loans and improving the health of the banking sector. It is expected that NARCL’s offer will encourage other ARCs to submit competitive bids for the loans of Parenteral Drugs, which will further increase the chances of resolving the company’s insolvency proceedings in a fair and transparent manner.
