The Indian Banks Association (IBA) has applied to the Reserve Bank of India (RBI) for a license to set up a National Asset Reconstruction Company Ltd (NARCL) of Rs 6,000 crore or a bad bank, according to sources.
NARCL was incorporated last month in Mumbai after registration with the Registrar of Companies (RoC).
According to sources, the company after raising initial capital of Rs 100 crore and completing other legal formalities approached the RBI to apply for a license to undertake asset reconstruction activities.
The RBI in 2017 increased the required capital to Rs 100 crore from the previous level of Rs 2 crore, keeping in mind the higher amount of cash required to buy bad debt.
RBI has its process and procedure for licensing such activities, sources said, adding that it could take a few weeks to come to obtain a license from the regulator.
RBI’s approval could come in September or October, sources added.
AZB & Partners legal consultant has been engaged to obtain various regulatory approvals and complete other legal formalities.
IBA, responsible for setting up a bad bank, has set up a preliminary board for NARCL. The company hired PM Nair, a stressed asset expert from the State Bank of India (SBI), as its managing director.
The other directors on the board are IBA Managing Director Sunil Mehta, SBI Deputy Managing Director SS Nair, and Canara Bank Managing Director Ajit Krishnan Nair.
Finance Minister Nirmala Sitharaman, in the 2021-2022 budget, announced that the high level of provisioning by public sector banks to their stressed assets calls for measures to clean up the bank books.
“An Asset Reconstruction Company Limited and an Asset Management Company would be created to consolidate and take over existing stressed debt,” she said in the budget speech. It will manage and sell the assets to alternative investment funds and other potential investors for possible valuation, she said.
Last year, IBA proposed the creation of a bad bank for rapid resolution of non-performing assets. The government accepted the proposal and decided to opt for an asset reconstruction company and asset management company model in this regard.
Meanwhile, state-owned Canara Bank has expressed its intention to be the main sponsor of NARCL with a 12% stake.
The proposed NARCL would be 51 percent owned by utility bodies and the remainder by private sector lenders.
NARCL will take over identified bad debts from lenders. The lead bank with an offer in the hands of NARCL will go for a “Swiss Challenge”, in which other actors in the reconstruction of assets will be invited to improve the offer made by a chosen bidder to find a more valuation. high of a non-performing asset for sale.
The company will recover the assets that are 100 percent provided by the lenders. The banks have identified around 22 bad loans worth Rs 89,000 crore to be transferred to NARCL in the initial phase.
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