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Wednesday, July 28, 2021

ARCs stretched, ‘bad bank’ road map: Rs 2 lakh crore of stressed assets

This is set to rise going forward as sources say that NARCL may have a capital base of Rs 6,000-7,000 crore eventually. Some private sector banks are also expected to pick up equity stake in the company.

Written by Sunny Verma , Sandeep Singh | New Delhi |
July 21, 2021 3:08:23 am
The ARC, along with an asset management company, India Debt Management Company, was proposed in this year’s Budget to take over the stressed debt of banks.

Even as state-owned banks have identified 22 assets, worth about Rs 82,500 crore, for transferring to the newly set up National Asset Reconstruction Company Ltd (NARCL) in the near future, the entity will eventually take over most legacy non-performing assets (NPAs) worth over Rs 2 lakh crore. NARCL, owned by state-owned banks, was registered with the Registrar of Companies (RoC) in Mumbai on July 7.

“These are the kind of assets which cannot be effectively resolved through the existing resolution mechanism. NARCL will resolve these, backed by the government on the SR (security receipt) component,” a senior official said. Government sources said most existing asset reconstruction companies were thinly capitalised and could not deal with the scope of NPA problem, especially for loans where potential recovery is around the liquidation value.

NARCL, also known as a bad bank, has eight public sector banks as its shareholders. According to the Articles of Association of the company, filed with the RoC, while SBI, Union Bank of India, Bank of Baroda and Indian Bank own 99 lakh shares each, Canara Bank owns 1.2 crore shares.

Other shareholders include — Punjab National Bank (90 lakh shares), Bank of India (90 lakh shares) and Bank of Maharashtra (50 lakh shares). The authorised share capital of the company is Rs 100 crore divided into 10 crore shares of Rs 10 each.

Explained

Key objectives

As per the objectives of the company, it will carry out the business of an asset reconstruction company. Besides dealing in financial assets, it will also manage, enforce, sell or realise any property or asset that may come into its possession, among others.

This is set to rise going forward as sources say that NARCL may have a capital base of Rs 6,000-7,000 crore eventually. Some private sector banks are also expected to pick up equity stake in the company.

The company has four directors on its board — Padmakumar Madhavan Nair (CGM, SBI), Salee Sukumaran Nair (DMD, SBI), Nair Ajit Krishnan (CGM, Canara Bank) and Sunil Mehta (chief executive, Indian Banks’ Association). Sources said the company will hire more people in senior management and operational roles shortly.

As per the objectives of the company, it will carry the business of an asset reconstruction company. Besides dealing in financial assets, it will also manage, enforce, sell or realise any property or asset that may come into its possession, among others.

As the mechanism for transfer of stressed assets to ARCs is already in place, NARCL is expected to start functioning soon. “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,” Minister of State for Finance Bhagwat Karad said in reply to a query in Lok Sabha on Monday.

While the government does not have any equity stake in the company, it will provide guarantee against loan losses on the security receipt issued by NARCL. The company will pay banks 15 per cent in cash and 85 per cent in the form of security receipts for transfer of stressed assets. The government’s guarantee committee is expected to total up to Rs 31,000 crore in due course.

NARCL will manage these assets and sell them to Alternate Investment Funds and other potential investors in due course to realise value of these assets. The ARC, along with an asset management company, India Debt Management Company, was proposed in this year’s Budget to take over the stressed debt of banks.

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