NEW DELHI: National Asset Reconstruction Company (NARCL) is ready to acquire stressed assets worth ₹82,845 crore involving 38 non-performing assets (NPAs) in phases — 15 NPA accounts involving ₹50,335 crore by March 31 and the balance in the next financial year — officials said, indicating that India’s bad bank is ready to start operations nearly a year after its creation was announced .
“Both NARCL and IDRCL [India Debt Resolution Company Ltd] have been setup to resolve NPAs worth over ₹2 lakh crore in phases,” a finance ministry spokesperson said. The intent to constitute the two entities was announced by finance minister Nirmala Sitharaman on February 1, 2021.
“The high level of provisioning by public sector banks of their stressed assets calls for measures to clean up the bank books. An Asset Reconstruction Company [ARC] and Asset Management Company [AMC] would be set up to consolidate and take over the existing stressed debt and then manage and dispose of the assets… for eventual value realization,” she added in her budget speech on that day.
“All requisite approvals for setting up of NARCL and IDRCL including from RBI [Reserve Bank of India], have now been received and both the companies are ready to commence their business,” Dinesh Kumar Khara, chairman, State Bank of India (SBI) said in a statement on Friday.
NARCL will acquire and aggregate the identified NPA accounts from banks while IDRCL, under an exclusive arrangement will handle the debt resolution process, he said , adding that the exclusive arrangement will be as per the debt management agreement to be executed between the two entities.
“This arrangement will be on a ‘Principal-Agent’ basis and final approvals and ownership for the resolution shall lie with NARCL as the Principal. This is as per the structure originally envisaged,” he added. This arrangement will also be in full conformity with provisions of SARFAESI Act as well as outsourcing guidelines of RBI, Khara said. The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act helps banks in expeditious recovery of NPAs.
While public sector banks (PSBs) have taken a majority ownership in NARCL, the other entity, IDRCL, will be majorly owned by private sector banks, Khara said.
IDRCL is expected to bring in superior resolution techniques, preserve the value of the assets, and showcase brown field assets and attract domestic as well as foreign investors, including alternate investment funds (AIFs). “This will maximize the value for all stakeholders. This mechanism is also expected to free up capital for the lending banks for deployment,” Khara added.
“NARCL plans to acquire the identified assets on a 15:85 Cash:SR [security receipts] structure and these SRs issued in favour of transferring lenders will be secured by Govt of India guarantee for its face value,” he said. The government in September last year announced a ₹30,600 crore five-year guarantee for security receipts issued by NARCL for acquiring bad loans.
Setting up of the ARC and AMC is another measure by the Narendra Modi government to address the NPA issue. After a transparent Asset Quality Review (AQR), undertaken in 2015, gross NPAs of PSBs soared from ₹2,16,739 crore on March 31, 2014 to ₹8,95,601 crore in March 31, 2018 mainly due to indiscriminate lending After the government’s four ‘R” strategy – recognition, resolution, recapitalisation and reforms – this number was brought down to ₹6,16,616 crore on March 31, 2021, according to official data. The bad bank will help address the issue.
For all the latest business News Click Here
