India's 'Bad Bank' Nearer To Fruition: IBA Moves RBI Seeking Licence To Set up ₹6,000-crore National Asset Reconstruction Company

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The Indian Banks' Association (IBA) has moved an application to the Reserve Bank of India (RBI) seeking licence to set up a ₹6,000-crore National Asset Reconstruction Company Ltd (NARCL) or the so-called 'bad bank'.

Indian banks have identified 22 loan accounts worth a total outstanding of ₹89,000 crore to shift to the proposed National Asset Reconstruction Company (NARCL). The aggregate amount of bad loans likely to be transferred in trenches will be ₹2 trillion(₹2 lakh crores).

The Indian Banks' Association (IBA) has moved an application to the Reserve Bank of India (RBI) seeking licence to set up a ₹6,000-crore National Asset Reconstruction Company Ltd (NARCL) or bad bank, PTI reported quoting sources privy to the development.

During her FY22 budget speech, Union Finance Minister Nirmala Sitharaman announced the bad bank' proposal to manage the bad debt of public sector banks and other financial institutions. Under the plan, the proposed 'bad bank' will house bad loans of ₹500 crore and above with a structure that will contain an asset reconstruction company (ARC) and an asset management company (AMC) to manage and recover bad assets.

NARCL, which was was incorporated in July, has reportedly mobilised an initial capital of ₹100 crore and fulfilled other legal formalities before approaching RBI seeking licence to undertake asset reconstruction business.

The proposed NARCL would be 51 per cent owned by public sector banks PSBs and the remaining by private-sector lenders. Sponsored by Canara Bank, other public sector lenders such as Union Bank of India and Punjab National Bank will also have stakes in NARCL.

Indian banks have identified 22 loan accounts worth a total outstanding of ₹89,000 crore to shift to the proposed National Asset Reconstruction Company (NARCL). The aggregate amount of bad loans likely to be transferred in trenches will be ₹2 trillion(₹2 lakh crores).

IBA, entrusted with the task of setting up a bad bank, has put a preliminary board for NARCL in place. The company has hired Padmakumar Madhavan Nair,, a stressed assets expert from State Bank of India (SBI), as the managing director. The other directors on the board are IBA Chief Executive Sunil Mehta, SBI Deputy Managing Director S S Nair and Canara Bank's Chief General Manager Ajit Krishnan Nair.

Also Read: A Bad Bank Won’t Work Without A Good Design: Why Government Must Own Most Of It

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