December 5, 2022

Bad bank takes off, to get Rs 50,000cr of NPAs in FY22 – Times of India

MUMBAI: State Bank of India chairman Dinesh Khara on Friday said that the National Asset Reconstruction Company (NARCL) — the bad bank proposed to take over non-performing loans (NPLs) — has received all approvals to commence operations. He added that 15 loans worth Rs 50,000 crore from banks would be transferred to the NARCL by end of March 2022. These would be out of the NPLs worth Rs 82,425 crore that banks have agreed on.
The announcement comes days before the Union Budget and nearly a year after the bad bank was announced by the finance minister in the Budget speech last year. Khara said that the India Debt Resolution Company (IDRCL), the entity that will seek to recover funds from these non-performing assets (NPAs), has also received all the requisite regulatory approvals. “There were certain concerns that were being raised in the media, but I am happy that both the entities have received approval,” said Khara.


Introducing the management of the two firms, Khara said that NARCL will be managed by Padma Kumar Nair, while IDRCL will be headed by Manish Makharia. Nair was earlier chief general manager at SBI, while Makharia headed SBI Mutual Fund’s alternate investment funds vertical. SBI’s deputy MD Subroto Biswas will be the chairman of NARCL. Bankers said that earlier Pradip Shah, founder of IndAsia Fund Advisor, was selected for the chairman position at NARCL. Another private sector executive was also shortlisted for the CEO.
Khara said while NARCL would be in the public sector, IDRCL will be majorly owned by private sector banks. There are several asset reconstruction companies, but the advantage NARCL would hold is that it would issue security receipts that are guaranteed up to 85% by the government as currency to acquire the bad loans.
Khara said that most of the identified bad loans are provided for by banks. This means that they would not need to make additional provisions when they are sold to NARCL at fair value. Also, the security receipts will be considered zero-risk to the extent of the government guarantee and not attract capital requirements.
Once the assets are transferred to NARCL, an asset-level trust will be formed for each loan account and the resolution of the account would be handled by IDRCL, which would only be a service company and not hold any assets on its books. In September last year, the government had announced guarantees worth Rs 30,600 crore to security receipts issued by NARCL. The guarantee is valid for five years, by which time the loans are expected to be resolved. IDRCL is expected to bring in expertise in resolution techniques and attract domestic as well as foreign investors.

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