NARCL to start operating soon
According to banking sources, the National Asset Reconstruction Company is about to be operationalized in about a month clearing the way for the transfer of stressed assets worth 83,000 crores to so-called bad banks.
According to the sources, all the formalities have been almost completed. NARCL will take off in a month. Banks would have the option to transfer several large stressed assets worth Rs 2.25 lakh crore initially to NARCL.
IBA has also finalized the article of association and memorandum of association in order to make NARCL take off quickly.
IBA is also in touch with REC to seek its contribution to equity, he added “The discussion with REC has been moving towards a positive outcome”. No private bank has agreed to put in the capital yet, but the talks are still on. All Public Sector Banks (PSBs) except for Punjab and Sind Bank has also evinced their interest in picking up stakes in this so-called Bad Bank.
As the source informed, the finance ministry could seek cabinet approval soon for a plan to offer sovereign guarantee on the security receipts (SRs) which is issued by NARCL while acquiring the bad loans from the lenders. This would cost the government about 30,600 crores over a span of five years.
The government has backed the setting up of NARCL but still, it wouldn’t infuse capital into it, instead, the equity would be provided by participating banks. Nevertheless, it will still provide a guarantee on the SRs to make the bad loan resolution more attractive and approachable.
The Global Rating Agency on Wednesday indicated that relief measures have postponed banks’ asset quality issues now. The agency expected the impaired loans to peak after the 2023 financial year and the state-run banks are expected to lower the capital base.
Stressed assets could be acquired by NARCL at net book value offering 15% in cash while resting in SRs. Once the loan is resolved, the realization for the relevant banks would be in sync with its SR interest in the asset.
Canara Bank has already announced to be the sponsor for NARCL holding equity of 12%, most of the other large banks are expected to pick up around 10% each. SS Mallikarjun Rao, MD of PNB has announced that his bank would be held under 10% in the bad bank.
While Union Bank of India MD and CEO and IBA chairman Rajkiran Rao G said it would be 9% for their bank. UBI and PNB have identified bad loans worth 7,800 crores and 8000 crores respectively, for transfer to NARCL.
In order to work out on the toxic assets and make decisions on them an asset management company of professionals will be set up within the NARCL structure. Of the initially reviewed NPAs, banks have zeroed in on 22 accounts amounting to roughly Eighty-Nine Thousand Crore for transfer to NARCL in the first phase.