Batomove application to Biforsettingupbadbank
Of the NARCL will owned by PSBS, vate sector lenders l own the rest
Having secured ce from the Registrar of panies, the Indian Banks’ ciation (IBA) will soon e an application to the rve Bank of India (RBI) to p a ₹6,000-crore National t Reconstruction Company (NARCL) or bad bank, rding to sources. ith registration of the com, the process for putting an al capital of ₹100 crore is on er the guidelines, the soursaid adding that the next will be audit and then move ication to the RBI seeking ce for the asset reconstruccompany. he RBI in 2017 raised capital irement to ₹100 crore from earlier level of ₹2 crore ing in mind higher amount ash required to buy bad s. gal consultant AZB & Parthas been engaged for seekarious regulatory approvnd fulfilling other legal forties. he initial capital would e from eight banks who e committed, and the CL would expand the capiase to ₹6,000 crore subsetly after the RBI’S nod, the ces said. her equity partners would after the RBI’S licence and
the board would be nded, the sources added. A, entrusted with the task tting up a bad bank, has put liminary board for NARCL ace. The company has hired Nair, a stressed assets rt from State Bank of India , as the managing director. other directors on the d are IBA chief executive l Mehta, SBI deputy managirector S S Nair and Canara
Bank’s chief general manager Ajit Krishnan Nair.
Finance minister Nirmala Sitharaman in Budget 2021-22 announced that the high level of provisioning by public sector banks of their stressed assets calls for measures to clean up the bank books.
“Asset Reconstruction Company Limited and Asset Management Company would be set up to consolidate and take over the existing stressed debt,” she had said in the Budget Speech. It will manage and dispose the assets to alternative investment funds and other potential investors for eventual value realisation, she had said.
Last year, IBA made a proposal for the creation of a bad bank for swift resolution of nonperforming assets. The government accepted the proposal and decided to go for an asset reconstruction company and asset management company model in this regard.
Meanwhile, state-owned Canara Bank has expressed its intent to be the lead sponsor of NARCL with a 12 per cent stake.
The proposed NARCL would be 51% owned by PSBS and the remaining by private sector lenders.
NARCL will take over identified bad loans of lenders. The lead bank with an offer in hand of NARCL will go for a ‘Swiss Challenge’, wherein other asset reconstruction players will be invited to better the offer made by a chosen bidder for finding higher valuation of a non-performing asset on sale.
The company has picked up those assets that are 100% provided for by the lenders. Banks have identified around 22 bad loans worth ₹89,000 crore to be transferred to NARCL in the initial phase.
The NARCL, or the so-called bad bank, was registered in Mumbai with a paid-up capital of ₹74.6 crore, according to filings with the Registrar of Companies (ROC).
Touted as a one-stop solution to India’s burgeoning bad loan menace, NARCL was set up on July 7 with an authorized capital of ₹100 crore and has been classified as a “Union government company”, the ROC filings showed.
The setting up of the bad bank is part of the government’s efforts to clean up India’s financial system, which is sitting on one of the biggest piles of bad assets in the world. Transferring soured loans to NARCL will allow banks to cut their losses and renew lending.
Now that the company has been set up, we have to seek an ARC licence from the Reserve Bank of India (RBI) and are preparing the documents for that. Depending on when the approvals come, NARCL will shortly start operations,” said a person aware of the development, seeking anonymity.
Initially, state-run banks will transfer 22 bad loan accounts worth ₹89,000 crore to NARCL. Total bad loans worth ₹2 lakh crore are likely to be transferred in tranches.