SASF is a special-purpose vehicle created two decades ago when the term-lending institution, IDBI Ltd, was merged with its subsidiary IDBI Bank to become a commercial bank.
As a one-time measure, in 2004, the government allowed IDBI to transfer its distressed loans to IDBI Trust, which managed ₹9,000 crore of distressed loans acquired under SASF from IDBI. While the trust recovered most of the loans, the balance is being sold now. The fund is being wound down as it completes its 20-year life cycle, as reported by ET on October 30. Cyril Amarchand Mangaldas is the legal adviser to EY.
IDBI Bank did not respond to ET’s request for comment.
IDBI Bank hopes to recover about 15-18% from the portfolio sale, one of the people said. It has 631 accounts with principal loans of ₹4,000 crore. These include Daewoo Motors, Malvika Steel, Mardia Chemicals, Modi Rubbers, Precision Fasteners, Rajinder Steels, Steel Tubes of India, Surana Oil, Usha Ispat and Western India Shipyard.
The distressed asset portfolio sale comes around the time when the promoters of the bank are preparing to sell a part of their stake. Life Insurance Corporation holds 49.2% of the bank, while the government owns 45%. Together, they plan to offload a 60.7% stake.Two decades ago, the government provided a loan of ₹9,000 crore to SASF in a two-step transaction. Concurrently, SASF subscribed to zero-coupon government bonds of an equivalent value.SASF subsequently transferred the bonds to IDBI Bank as part of the consideration for acquiring stressed assets from the bank. Over time, as the trust recovered loans from defaulting borrowers, it used the proceeds to repay the government loan. As the loan repayment progressed, the corresponding bonds were gradually redeemed.
IDBI Bank currently holds the remaining bonds in its books and provisions have been made by classifying these as non-performing investments.
CS Setty, managing director of State Bank of India, is the chairman of SASF Trust while Sunil Mehta, CEO of Indian Banks Association, is a trustee. Two deputy managing directors – Suresh Khatanhar and Jayakumar Pillai – are also trustees.