Bad bank to buy Rs 50,000 crore NPAs in first phase

By Express News Service

MUMBAI: Nearly a year after Finance Minister Nirmala Sitharaman announced it in the 2021 Budget, India’s first bad bank is set to go live. All regulatory approvals have been secured to set up the National Asset Reconstruction Company (NARCL) and India Debt Resolution Company (IDRCL), State Bank of India (SBI) chairman Dinesh Kumar Khara told reporters here on Friday. 

SBI is one of the stakeholders in the bad bank. The announcement comes days before the 2022 Budget. The bad bank has two legs — NARCL to identify, aggregate and acquire stressed assets from lenders, and IDRCL to handle the debt-resolution.

A total of 38 accounts worth Rs 82,845 crore have so far been identified for transfer to NARCL in a phased manner, said Khara. In the first phase, banks will transfer 15 non-performing accounts aggregating Rs 50,000 crore to NARCL. This will be done within the current financial year, which ends on March 31, said Khara. NARCL will transfer these bad loans to IDRCL, which will then scout for domestic or international buyers in an attempt to resolve them.

NARCL will try to acquire assets on a 15:85 cash and security receipts (SRs) ratio. It means the lenders will receive 15% upfront cash payment and the remaining in the form of SRs guaranteed by the Government of India for their face value. 

The guarantee is for Rs 30,600 crore. If the bad bank can’t sell the loan or sells them for a loss, the SRs guaranteed by the government will be used to make good the difference between what the lender was supposed to receive and what NARCL was able to raise. 

The government guarantee will be valid for five years from the SR’s date of issue. The SRs will enable release of capital from the banking system as the lenders will not be required to make any provisions for that capital. The risk weight would be zero and this capital could be deployed more productively. The NARCL-IDRCL structure will maximise the value for all stakeholders, Khara said. 

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