Relying on established theories in auction literature, the lacunae in the design of auction mechanism used by the banks are identifi ed. The choice of security used for the payment of the bid amount, the proportional distribution between upfront cash and debt issued by the bidder, and the priority of the bidder’s payment are evaluated. Banks should review the choice of security used in the contingent payment auction mechanism and the policy to make cash component a predefi ned portion of the aggregate bid. It is advisable to review the payment priority of asset reconstruction companies and the proportion of cash in the aggregate bid undertaken, to improve ultimate recovery from auctioned NPLs.
