The Association of Indian Banks (IBA) has applied to the Ministry of Corporate Affairs for the incorporation of the National Asset Reconstruction Company (NARCL), which will pave the way for its rapid operationalization, banking sources told FE.
Not only the big lenders, but all the public sector banks (PSBs) except Punjab & Sind Bank have shown interest in taking stakes in the so-called bad bank, said one of the sources.
The IBA – which is the spearhead of the NARCL establishment initiative – has also held talks with the REC, seeking its contribution to equity, he added. “Discussions with REC (which funds rural electrification projects) have turned towards a positive outcome,” said the source. No private bank has yet agreed to provide capital, but discussions are still ongoing.
While Canara Bank has announced that it will sponsor NARCL and hold a 12% stake, other major banks are expected to recover around 10% each. Punjab National Bank (PNB) Managing Director and Managing Director SS Mallikarjun Rao said his bank would hold less than 10% in the wrong bank, while Union Bank of India Managing Director and CEO and Chairman of IBA, Rajkiran Rao G, said the lender would buy 9%. . PNB and Union Bank have identified bad debts worth approximately Rs 8,000 crore and Rs 7,800 crore, respectively, to be transferred to NARCL.
In the meantime, the IBA has finalized the statutes as well as the constitution of the NARCL so that the asset reconstruction company takes off quickly.
Sources previously told FE that the Finance Ministry may soon seek Cabinet approval for a plan to offer a sovereign guarantee on security receipts (SRs) issued by NARCL while acquiring bad debts from lenders. . It would cost the government Rs 30,600 crore over five years.
A leading banker had said last week that the cost to the public treasury would not exceed Rs 30,600 crore, according to IBA estimates, as the prospects of recovering some of the bad loans looked promising.
Although the government supported the creation of NARCL, announced in the FY22 budget, it would not inject capital into it; instead, participating banks would invest the equity. Nevertheless, it is planned to give collateral on SRs to make the bad debt resolution process more viable and attractive.
A professional asset management company will also be set up within the broader NARCL structure, which will develop toxic assets and make appropriate decisions, including selling them to investors.
Financial Services Secretary Debasish Panda had said earlier that banks would have the option to transfer several large stressed assets (at least Rs 500 crore each) with an initial value of Rs 2.25 lakh crore to NARCL . The IBA is also developing an “exit strategy” for accounts that remain pending even after five years.
Of the 101 non-performing assets (NPAs) initially examined, the banks focused on 22 accounts amounting to around Rs 89,000 crore for transfer to NARCL during the first phase.
NARCL should acquire stressed assets at their net book value by offering 15% of these in advance (in cash) and the rest (85%) in SR. Once the bad loan is resolved, the realization for the affected bank would be synchronized with its SR interest in that asset.