The Reserve Bank of India (RBI) said the aggregation of assets by the proposed National Asset Reconstruction Company Limited (NARCL) is expected to assist in turning around the assets and eventually offloading them to Alternative Investment Funds (AIFs) and other potential investors for further value unlocking.

Banks are understood to have identified 22 stressed consortium loans (₹500 crore and above) aggregating about ₹89,000 crore for transferring to NARCL, popularly termed as a “bad bank”.

According to RBI’s latest Financial Stability Report, drawing from established market principles and global experience, the success of a bad bank initiative would eventually depend upon design aspects.

The design aspects include fair pricing; complete segregation of risk from selling banks; investment of external capital; independent and professional management of the new entity; minimising moral hazard; and adequate capitalisation of the banks post-sale of assets to invigorate fresh lending.

The Board of Canara Bank had given in-principle approval on June 15, 2021, for participating in the National Asset Reconstruction Company Ltd (NARCL) as a sponsor by taking 12 per cent equity stake.

The Bengaluru-headquartered public sector bank has sought the Reserve Bank of India’s approval for the same.

Banks such as State Bank of India, Bank of Baroda, Bank of India and IDBI Bank are expected to take up to 10 per cent stake in NARCL.

Related Topics