Decks cleared for bad bank to start

Mumbai: Decks have been cleared for India to have its own bad bank with all requisite approvals in place, including from the RBI. The bad bank, or the National Asset Reconstruction Company Ltd (NARCL), will acquire bad loans from banks to help clean up their books, while the India Debt Resolution Company Ltd (IDRCL) will handle the debt resolution process of these loans.
The bad bank was envisaged by finance minister Nirmala Sitharaman in her budget speech on February1, 2021.

State Bank of India (SBI) chairman Dinesh Khara on Friday told reporters in a virtual press conference that a total of 38 large stressed accounts aggregating to Rs 82,845 crore have been identified for transfer to the NARCL, but the transfer will happen in a phased manner.

Under phase-I, about 15 accounts, aggregating to Rs 50,335 crore are expected to be transferred in the current financial year, i.e. on or before March 31. Banks have provided fully for the identified accounts.

The RBI’s final nod for the bad bank was received after a new structure was proposed by the Indian Banks Association.

Banks will get 15 per cent cash upfront while transferring bad loans to the NARCL, and the remaining 85 per cent in the form of security receipts. The auction will be conducted in a Swiss Challenge method, and other asset reconstruction companies (ARCs) will be allowed to participate and offer competitive bids. While the public sector banks will have a majority stake in the NARCL, private banks will have a notable stake in the IDRCL.

The Union Cabinet had also approved Rs 30,600 crore government guarantee for the NARCL in September 2021. As of March 2021, the total bad loans in the banking system amounted to Rs 8.35 lakh crore.

Both the companies have their respective boards in place. To start with both companies are having their MD & CEOs on a secondment basis.