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L&T Finance sells Rs 3463 crore NPAs to Phoenix ARC

L&T Finance sells Rs 3463 crore NPAs to Phoenix ARC


In the single largest trade in bad loans involving a non-bank lender last fiscal, L&T Finance sells little over Rs 3400 crore from its stressed-assets portfolio to Kotak Mahindra Bank-backed Phoenix ARC Pvt in the last week of March, two people aware of the matter told ET. The sale comes as finance companies are brought within the purview of stricter bad-loan norms that apply to traditional lenders.

L&T Finance sold Rs 3,463 crore of distressed loan portfolio for Rs 1,120 crore under the conventional 15:85 structure, the people cited above said. Under this structure, the asset reconstruction company would pay L&T Finance 15% of the consideration upfront and redeem the security receipts (SR) as they recover dues from the defaulting borrowers.

The development comes within a few months of the Reserve Bank of India (RBI) introducing prompt corrective action (PCA) and stringent non-performing assets (NPA) classification norms for non-banking finance companies.

L&T Finance does not disclose its gross or net NPA to investors in its quarterly results. Its gross stage three (GS3) loans stood at Rs 4,866 crore, or 5.9% of the total loans, as of December 2021, the company’s presentation to analysts showed. GS3 comprises loans due for more than 90 days and other stressed assets.

L&T Finance invited bids for four pools of stressed loans aggregating to Rs 5,238.7 crore, including the interest component. Of this, Phoenix ARC acquired three pools.

Warasgaon Power, Warasgaon Assets Maintenance, MEP Infrastructure, Supreme Panvel Indapur Tollways, SEW Infrastructure, Supertech Infrastructure, Brassco Engineering Ltd and EMTA Coal are among the 36 accounts sold to Phoenix ARC, one of the people cited above said.

L&T Finance declined to comment, while Phoenix did not respond to ET’s queries.

The PCA framework for finance companies would place certain restrictions on weaker players that, for instance, have lower capital adequacy ratios or high non-performing loans, or both. As per the central bank norms, the first threshold is breached when net NPAs are above 6% and the capital adequacy ratio is between 12 and 15%.

“Although L&T Finance NPA levels are not known, it is a timely move by it to sell stressed loans, since the PCA framework will consider FY22 performance,” said a senior banker with exposure to the finance company.

The latest central bank policy on income recognition and asset classification effective from the end of September 2022, too, may have prompted some finance companies to sell bad loans. The revised policy stated that an account classified as NPA can upgrade to a standard loan only if all the past dues are fully paid.

A year ago, L&T Infrastructure Finance and L&T Housing Finance were merged into L&T Finance Ltd, a wholly owned subsidiary of L&T Finance Holdings. It has a total loan book of Rs 85,552 crore as of December 2021.


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