According to sources, the Indian Banks' Association (IBA) has applied to the Reserve Bank of India (RBI) for a licence to create up a 6,000-crore National Asset Reconstruction Company Ltd. (NARCL) or bad bank.
Following registration with the Registrar of Companies (RoC), NARCL was incorporated in Mumbai last month. According to reports, the company applied the RBI for a licence to conduct asset reconstruction business after raising an initial capital of Rs 100 crore and completing other legal formalities. In 2017, the RBI increased the capital requirement from 2 crore to 100 crore, recognizing the rising amount of cash necessary to buy problematic loans. RBI has its own process and protocol for awarding licences for such businesses, according to sources, who added that getting a licence from the regulator could take a few weeks. According to insiders, the RBI's clearance might come in September or October. AZB & Partners, a legal consulting firm, has been hired to seek various regulatory clearances and complete other legal requirements.
IBA, which was tasked with establishing a bad bank, has set up a preliminary board for NARCL. P.M. Nair, a stressed assets expert from the State Bank of India (SBI), has been appointed as the company's managing director. IBA Chief Executive Sunil Mehta, SBI Deputy Managing Director S.S. Nair, and Canara Bank's Chief General Manager Ajit Krishnan Nair are the other directors on the board.
In Budget 2021-22, Finance Minister Nirmala Sitharaman stated that the high level of provisioning by public sector banks for stressed assets necessitates actions to clean up bank books. In her Budget Speech, she stated, "An Asset Reconstruction Company Limited and Asset Management Company would be set up to consolidate and take over the existing stressed debt," She had stated that it will manage and dispose of the assets to alternative investment funds and other possible investors in order to realise their full value.
Last year, the IBA proposed the establishment of a bad bank to expedite the resolution of non-performing assets. In this case, the government accepted the concept and opted to use an asset reconstruction and asset management firm, model. Meanwhile, Canara Bank, a subsidiary of the Indian government, has expressed interest in being the principal sponsor of NARCL, with a 12 percent share.
PSBs would control 51% of the planned NARCL, with private-sector lenders owning the rest. Lenders' problematic loans will be taken over by NARCL. Other asset reconstruction players will be invited to better the offer made by a chosen bidder for finding a higher valuation of a non-performing asset on sale in a 'Swiss Challenge,' in which the lead bank with an offer in the hand of NARCL will go for a 'Swiss Challenge,' in which other asset reconstruction players will be invited to better the offer made by a chosen bidder for finding a higher valuation of a non-performing asset on sale.
The corporation will take over assets that have been fully funded by the lenders. In the first phase, banks have identified roughly 22 problematic loans totalling Rs. 89,000 crore will be transferred to NARCL.