Govt launches `Bad Bank' to clean up PSBs' stressed assets
19 July 2021
The government has launched the National Asset Reconstruction Co Ltd (NARCL), or the `Bad Bank’ with all the regulatory approvals in place, minister of state for finance Bhagwat Kisanrao Karad stated in the Lok Sabha in a written reply today.
NARCL has been registered in Mumbai with an authorised capital of Rs100 crore and a paid-up capital of Rs74.6 crore, according to filings with the Registrar of Companies (RoC).
Touted as a one-stop solution to India’s burgeoning bad loan menace, NARCL has been classified as a “Union government company".
Sponsored by Canara Bank, other public sector lenders such as Union Bank of India and Punjab National Bank will also have stakes in NARCL. “The Indian Banks’ Association (IBA) has asked lead banks to call for meetings and keep an approval ready so that as soon as the ARC is formed, they can start the process (of transferring bad loans)," Rajkiran Rai G, chairman of IBA and the chief executive of Union Bank of India, said last month.
The bad bank will be headed by Padmakumar Madhavan Nair, a stressed assets expert from State Bank of India (SBI), as the managing director. The other directors are Indian Banks’ Association (IBA) chief executive Sunil Mehta, SBI deputy managing director Salee Sukumaran Nair and Canara Bank’s representative Ajit Krishnan Nair.
Finance minister Nirmala Sitharaman, while presenting the Union Budget 20221-22, had made the following announcement:
“The high level of provisioning by public sector banks of their stressed assets calls for measures to clean up the bank books. An Asset Reconstruction Company Limited and Asset Management Company would be set up to consolidate and take over the existing stressed debt and then manage and dispose of the assets to Alternate Investment Funds and other potential investors for eventual value realisation.”
Karad said the Indian Banks’ Association (IBA) has been apprised on the incorporation of the National Asset Reconstruction Company Limited (NARCL) and about its registration with the Registrar of Companies on 7 July 2021.
The Reserve Bank of India, being the regulator of Asset Reconstruction Companies (ARCs), has already prescribed a regulatory framework for the functioning of ARCs and there are well-laid norms for transfer of stressed assets by banks and non-banking finance companies to ARCs. Identification of non-performing assets by an ARC is an ongoing process, the minister stated.