As per the statement of State Bank of India’s (SBI) Chairman Dinesh Kumar Khara, Banks will be transferring 15 stressed assets (i.e. Non-Performing Asset (NPA) accounts) aggregating worth over Rs 50,000 crore by March 31, 2022 (i.e. within FY22) to the National Asset Reconstruction Company Ltd (NARCL)/bad bank to clean up their books.
- The initial 15 stressed assets (each above Rs 500 crore) account for 60 percent of the 38 identified stressed assets worth around Rs 82, 845 crores (~Rs.83000 Crores), which was agreed by Banks to be transferred to NARCL.
i.Once the bad loans are transferred to NARCL, a trust will be set up for each loan account, and the debt resolution will be handled by India Debt Resolution Co. Ltd (IDRCL), which will not carry any balance sheet (The balance sheet will be with the NARCL).
ii.IDRCL will handle the resolution process under an exclusive arrangement.
iii.NARCL will acquire the identified assets by paying the lenders with 15 percent of the acquisition value in cash and 85 percent via Security Receipts (SRs).
iv.Padmakumar Nair, Chief General Manager from State Bank of India’(SBI)s stressed assets vertical, will manage NARCL, and Manish Makharia, Executive Vice President (EVP) & Head, Alternative Investment Funds (AIF), SBI Mutual Fund, with be heading IDRCL.
- The SRs will be secured by Government of India guarantee for their face value. In September 2021, the Union Cabinet approved a government guarantee of up to Rs 30,600 crore to back SRs for 5 years that will be issued by NARCL.
- Initially, it was estimated that ₹2 lakh crore of bad loans would be transferred to the bad bank but since some accounts have been resolved, the figure has come down to about ₹1.5 lakh crore.
Key Facts about NARCL:
i.In July 2021, the Ministry of Corporate Affairs (MCA) incorporated the NARCL also known as Bad Bank /Asset Reconstruction Company (ARC) after its registration with the Registrar of Companies (RoC). Click here to know more
ii.In October 2021, the RBI, gave a licence to the Rs 6,000 crore NARCL to start operations as the bad bank.
i.NARCL was created in collaboration with both Public and Private Sector Banks (PSBs), and Indian Banks’ Association (IBA) to aggregate and consolidate stressed assets for their subsequent resolution.
ii.51 percent of NARCL will be owned by PSBs and the remaining by private-sector lenders.