IBA moves RBI, seeks licence to set up ₹6,000 crore NARCL

The approval from the RBI could come either in September or October

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, according to sources.

NARCL was incorporated last month in Mumbai following the registration with Registrar of Companies (RoC).

According to sources, the company, after mobilising an initial capital of ₹100 crore and fulfilling other legal formalities, has approached the RBI seeking licence to undertake asset reconstruction business.

The RBI in 2017, had raised the capital requirement to ₹100 crore from the earlier level of ₹2 crore, keeping in mind the higher amount of cash required to buy bad loans.

RBI has its process and procedure for granting licence for such business, sources said, adding, it could take a few weeks to obtain licence from the regulator. The approval could come either in September or October, sources added.

Legal consultant AZB & Partners has been engaged to seek various regulatory approvals and fulfilling other legal formalities.

The IBA, entrusted with the task of setting up a bad bank, has put a preliminary board for NARCL in place. The company has hired P.M. Nair — a stressed assets expert from the 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.

Last year, the IBA had made a proposal for the creation of a bad bank for swift resolution of non-performing assets. The government accepted the proposal and decided to go for an asset reconstruction company and asset management company model.

Meanwhile, the state-owned Canara Bank has expressed its intent to be the lead sponsor of NARCL with a 12% stake.

The proposed NARCL would be 51% owned by PSBs and the remaining by private-sector lenders.

Finance Minister Nirmala Sitharaman, in the Budget 2021-22, had announced that the high level of provisioning by Public Sector Banks of their stressed assets called for measures to clean up bank books.

"An Asset Reconstruction Company Limited and Asset Management Company would be set up to consolidate and take over the existing stressed debt," she had said in the Budget Speech. It will manage and dispose the assets to alternative investment funds and other potential investors for eventual value realisation, she had said.

The NARCL will take over identified bad loans of lenders. The lead bank with an offer in the hand of the NARCL will go for a ‘Swiss Challenge’, wherein other asset reconstruction players will be invited to better the offer made by a chosen bidder for finding a higher valuation of a non-performing asset on sale.

The company will pick up those assets that are 100% provided for by the lenders. Banks have identified around 22 bad loans worth ₹89,000 crore to be transferred to the NARCL in the initial phase.

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