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The much-awaited bad bank — National Asset Reconstruction Company Ltd (NARCL) — has been incorporated, with the Corporate Affairs Ministry giving legal recognition few days back.
The NARCL — announced in this year’s Budget — will next approach the Reserve Bank of India for obtaining licence as an Asset Reconstruction Company (ARC).
“Registrar of Companies (RoC) Mumbai has given the registration for incorporation of NARCL. The other formalities are now being taken up,” sources close to the development said.
The capital structure will have a component of both equity and debt, they added. Public sector banks led by Canara Bank (which is likely to have 12 per cent stake) are expected to hold controlling stake in NARCL.
The other banks that are expected to pump in capital include State Bank of India, Bank of Baroda, Bank of India and IDBI Bank.
NARCL may eventually get capitalised about ₹7,000 crore.
The government will not have any direct equity contribution to NARCL. It will guarantee the security receipts issued by NARCL, which will buy the bad loans from banks. The Centre has earmarked ₹31,000 crore for the guarantees.
22 assets identified
Already, PSBs have identified 22 assets (stressed consortium loans of over ₹500 crore) worth about ₹82,500 crore that will be transferred to the bad bank in phases. In the long run, stressed assets worth as much as ₹2-lakh crore are expected to be transferred to NARCL.
The NARCL is expected to stick to the existing industry practice of paying 15 per cent in cash and 85 per cent in security receipts.
Proposed in the Budget
It maybe recalled that this year’s Budget had proposed the setting up of an ARC along with an asset management company (AMC) (to be called India debt management company) to take over the stressed debt of banks. The AMC will be controlled by the private sector and would help around the stressed assets for recovery.
A bad bank is basically an entity that houses the bad loans (non-performing assets) of a bank and will resolve or liquidate bad debt (stressed debt) to recover as much money as it can.
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