RBI grants licence to National Asset Reconstruction Company: Indian Banks’ Association CEO

A view of the Reserve Bank of India headquarters in Mumbai. File

A view of the Reserve Bank of India headquarters in Mumbai. File

The Reserve Bank of India (RBI) on October 4 gave licence to the ₹6,000 crore National Asset Reconstruction Company Ltd. (NARCL), a move that will help kickstart operations of the bad bank .

Also read: Explained | Can a ‘bad bank’ solve the growing NPA crisis?

NARCL was incorporated in July in Mumbai following registration with the Registrar of Companies (RoC).

“Happy to share #RBI has given License to #NARCL on 4.10.2021. The approval has been accorded under Section 3 of #SARFAESI Act 2002,” Indian Banks’ Association (IBA) CEO Sunil Mehta tweeted.

IBA, entrusted with the task of setting up the bad bank , has put a preliminary board for NARCL in place.

The company has hired P.M. Nair, a stressed assets expert from State Bank of India (SBI), as the managing director.

The other directors on the board are IBA CEO Mehta, SBI deputy managing director S.S. Nair and Canara Bank’s Chief General Manager Ajit Krishnan Nair.

Finance Minister Nirmala Sitharaman had in Budget 2021-22 said that the high level of provisioning by public sector banks of their stressed assets calls for measures to clean up bank books.

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“An 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 of the assets to alternative investment funds and other potential investors for eventual value realisation, she had said.

Last month, the Cabinet cleared a proposal to provide government guarantee worth ₹30,600 crore to security receipts issued by NARCL.

NARCL will pay up to 15% of the agreed value for the bad loans in cash and the remaining 85% would be government-guaranteed security receipts.

It will be 51% owned by PSBs and the remaining by private sector lenders.

Last week, SBI, Union Bank of India, Indian Bank picked up 13.27% stake each in the NARCL, while Punjab National Bank acquired about 12% stake.

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NARCL will take over identified bad loans of lenders.

The lead bank with an offer in the 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 a higher valuation of a non-performing asset on sale.

The company will pick up those assets that are 100% provided for by the lenders. Banks have identified around 22 bad loans worth ₹90,000 crore to be transferred to NARCL in the initial phase.

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Printable version | Sep 2, 2022 10:21:56 am |