Banks have finalised plans to transfer 15 Non-Performing Asset (NPA) accounts worth ₹50,000 crore to the National Asset Reconstruction Company Ltd. (NARCL), or the ‘bad bank’ set up to help resolve the stress by the end of this financial year.
“A total of 38 accounts aggregating to ₹82,845 crore have been identified for transfer to NARCL; however the transfer will happen in a phased manner,” Dinesh Khara, chairman. State Bank of India (SBI) said in a briefing.
“Under Phase I, about 15 accounts, aggregating to ₹50,335 crore, are expected to be transferred in the current financial year, i.e. on or before 31st March 2022,” he said.
He said all requisite approvals, including from the RBI, for setting up NARCL and the India Debt Resolution Company Ltd. (IDRCL) have now been received and that both companies were ready to commence business.
The broad features of the arrangement are that NARCL will acquire and aggregate the identified NPA accounts from the banks, while IDRCL, under the exclusive arrangement will handle the debt resolution process.
The final approval and ownership for the resolution shall lie with NARCL as the principal.
This arrangement will also be in full conformity with the provisions of the SARFAESI Act as well as outsourcing guidelines of the RBI.
Public sector banks have taken a majority stake in NARCL, while private sector banks would hold majority in IDRCL.
NARCL has the mandate to acquire the identified assets on a 15:85, cash: secured receipt (SR) structure. The SRs will be issued in favour of lenders transferring the assets. These SRs will be secured by a Government of India guarantee for their face value.
The NARCL-IDRCL structure is a committed arrangement which will ensure that there is certainty in terms resolution of the assets. Also, the resolution will take place at a faster pace, Mr. Khara said.
Normally, all assets that have been identified would be fully provided for as far as the banks were concerned. Since SRs are government guaranteed, to that extent it will also release capital from the banking system…. the risk weight will be zero, he said.
This universe does not include accounts that have been classified as fraud.
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, Mr. Khara said.
Both the companies have their respective boards in place, he pointed out.
To start with, both the companies are having their chiefs assigned on a secondment basis — Padmakumar Nair, Chief General Manager from SBI’s stressed assets vertical, will manage NARCL, and Manish Makharia, EVP & Head, AIF, SBI Mutual Fund, with be heading IDRCL.
Subrata Biswas, the nominee director on the board of NARCL, will be the interim Chairman and Diwakar Gupta continues as the Chairman of IDRCL.