National Asset Reconstruction Company Ltd (NARCL), a government created entity to tackle bad loan problem in India, is set to receive bad loans totalling around Rs 83,000 crore (around $11 billion) aggregated from across banks, according to State Bank of India (SBI) chairman Dinesh Khara.
Banks have agreed to transfer 38 accounts which are non-performing assets (NPAs) worth Rs 82,845 crore to the NARCL. In the first phase, 15 accounts worth Rs 50,335 crore ($6.6 billion) will be transferred to the NARCL before March 31, said Khara.
A year after its announcement, the long-awaited bad bank NARCL and the privately-owned asset management company India Debt Resolution Company Ltd (IDRCL), both have got the requisite approvals and have started operations, Khara informed in a conference call with media persons.
The NPA pool of Rs 83,000 crore is lesser than the previously identified amount of Rs 2 lakh crore for transfer to the NARCL as some assets have already been resolved while negotiations for the rest are still ongoing.
Khara added that the NARCL will purchase these loans through a 15:85 structure, where it will pay 15% of the sale consideration in cash and issue security receipts (SRs) for the remaining 85%.
“SRs which will be issued by the NARCL will be guaranteed to the extent of 85% by the Government of India... IDRCL will be independently helping in resolving the assets,” he said.
The government has provided a guarantee of up to Rs 30,600 crore, which will back SRs issued by the NARCL. The guarantee will be valid for five years and the amount will be issued based on actual assets acquired by the bad bank.
NARCL, which will be led by SBI chief general manager from its stressed assets vertical Padmakumar Madhavan Nair, will be jointly owned by few public sector banks with around 10% holding each, while IDRCL will have the backing of private sector banks.
Meanwhile, Manish Makharia, Head of Alternate Investment Fund, SBI Funds Management Pvt Ltd will be heading IDRCL. Both companies are having their MD & CEOs on secondment basis. Subrata Biswas, the nominee director on the Board of NARCL will be the interim Chairman and Shri Diwakar Gupta continues as the Chairman of IDRCL, the bank said.
The NARCL was set up to facilitate the aggregation and consolidation of stressed loans above Rs 500 crore each, from banks in phases.
The NARCL will have an exclusive arrangement with the IDRCL which will function with full operational freedom as an agent of the NARCL, which will hold the NPAs on its balance sheet.
This arrangement will be on a ‘Principal-Agent’ basis and final approvals and ownership for the resolution shall lie with NARCL as the Principal. This is as per the structure originally envisaged, SBI further said in a statement.
"This arrangement will comply with applicable regulatory guidelines at all times," Khara said.
IDRCL is expected to bring in superior resolution techniques, preserve the value, show-case brown field assets and attract domestic as well as foreign investors, Alternate Investment Funds, etc. This will maximize the value for all stakeholders. This mechanism is also expected to free up capital for the lending banks for deployment, the statement said.
"We will take a decision on whether more assets will need to be transferred to the NARCL, or if they can be resolved by banks themselves by next year," said J Swaminathan, managing director for the stressed assets management group at SBI.
The bad bank was one of the key budget announcements by Union Finance Minister Nirmala Sitharaman in February last year. Incidentally, both the entities started functioning few days ahead of the Budget for 2022-23.
