- It has acquired legal status after registering with the Registrar of Companies (RoC) in Mumbai, Maharashtra, it is set to approach the Reserve Bank of India (RBI) to seek ARC licence.
- It has been created in collaboration with both Public and Private Sector Banks, and Indian Banks’ Association (IBA).
- The India Debt Management Company Limited (IDMCL), a proposed Asset Management Company (AMC) to manage the bad loans is yet to get legal status.
- Bad bank refers to a financial institution that takes over bad assets of lenders and undertakes resolution.
Background
During the 2021-22 Union Budget session, Finance Minister Nirmala Sitharaman announced the setting of an ARC & Asset Management Company (AMC) for resolution of Non-Performing Assets (NPA) in the Indian Banking sector.
Key Points
i.Padmakumar Madhavan Nair, a stressed assets expert from SBI will serve as the Managing Director of NARCL.Other Directors are IBA’s Chief Executive Sunil Mehta, Deputy Managing Director of SBI Salee Sukumaran Nair & Canara Bank’s representative Ajit Krishnan Nair.
ii.NARCL will house bad loan accounts of INR 500 crore or more.
iii.It will pay up to 15% of the agreed value for the loans in cash and the remaining 85% would be Government-guaranteed security receipts.
iv.Canara Bank would be the sponsor of NARCL and will hold a 12% equity, other large public sector banks will hold less than 10% each in NARCL.
v.RBI stated that loans which have been classified as Fraud cannot be sold to NARCL. The annual report of RBI states that about INR 1.9 lakh crore of loans have been classified as fraud as on March 2020.
Stressed Assets worth INR 89,000 crore to be transferred in 1st Phase
In the 1st phase, 22 stressed accounts worth INR 89,000 crore identified by the lenders will be transferred to NARCL.
- In the future, an estimated INR 2 lakh crore is expected to be transferred to NARCL.
- State Bank of India (SBI) is set to transfer NPAs worth ~ INR 20,000 crore to NARCL, while Punjab National Bank (PNB) will transfer ~ INR 8,000 crore NPAs to it. Union Bank of India has identified NPAs worth INR 7,800 crore for transferring.
- The stressed accounts identified by banks belong to Reliance Naval and Engineering, Amtek Auto, Castex Technologies, Visa Steel, Wind World India and Lavasa Corporation and others.
Significance
The transfer of NPAs to NARCL will allow banks to cut their losses and renew lending. Its main advantage will be in its ability to aggregate bad loans.
- India’s NPA stands at INR 5,77, 137 crores.
- India’s NPA of 9.85% is higher than the Universally acknowledged official acceptable limit for NPAs – 3%.
Rao Inderjit Singh takes charge as Minister of State for MCA
Rao Inderjit Singh took charge as Minister of State in the Ministry of Corporate Affairs (MCA).
Recent Related News:
i.On January 11, 2021, RBI released the 22nd issue of its bi-annual Financial Stability Report (FSR) 2021. It stated that gross non-performing assets (GNPAs) may rise to 13.5% by September 2021, from 7.5% in September 2020 under the baseline scenario.
ii.In September 14, 2020, RBI issued a notification mandating banks to complete the automation of bad-loan recognition and provisioning processes by June 30, 2021.
About Ministry of Corporate Affairs (MCA)
Union Minister – Nirmala Sitharaman (Rajya Sabha – Karnataka)
Minister of State – Rao Inderjit Singh (Lok Sabha – Gurgaon, Haryana)
