The Indian Banks Association (IBA) has forwarded an application to the Reserve Bank of India (RBI) seeking a license to establish a National Asset Reconstruction Company (NARCL) of Rs 6,000 crore or a bad bank , according to sources.
NARCL was incorporated last month in Mumbai following registration with the Registrar of Companies (RoC).
According to sources, the company, after mobilizing initial capital of Rs 100 million and complying with other legal formalities, approached the RBI seeking a license to undertake asset rebuilding businesses.
The RBI in 2017 raised the capital requirement to Rs 100 million from the previous level of Rs 2 million, taking into account the increased amount of cash required to purchase bad loans.
The RBI has its process and procedure for licensing that business, the sources said, adding that it could take the next few weeks to obtain the license from the regulator.
RBI approval could come in September or October, the sources added.
Legal consultant AZB & Partners has been hired to seek various regulatory approvals and comply with other legal formalities.
IBA, charged with the task of establishing a bad bank, has established a preliminary board for NARCL. The company has hired PM Nair, a stressed assets expert from the State Bank of India (SBI), as managing director.
The other directors on the board are IBA CEO Sunil Mehta, SBI Deputy CEO SS Nair, and Canara Bank CEO Ajit Krishnan Nair.
The Minister of Finance, Nirmala Sitharaman, in the 2021-22 Budget, announced that the high level of provisioning by public sector banks of their stressed assets requires measures to clean up the bank books.
“An Asset Reconstruction Corporation and an Asset Management Corporation would be established to consolidate and take over the current distressed debt,” he had said in the budget speech. It will manage and dispose of the assets to alternative investment funds and other potential investors for eventual value realization, he said.
Last year, the IBA made a proposal for the creation of a bad bank for the rapid resolution of doubtful assets. The government accepted the proposal and decided to go for an asset reconstruction company and an asset management business model in this regard.
Meanwhile, the state-owned Canara Bank has expressed its intention to be the title sponsor of NARCL with a 12 percent stake.
The proposed NARCL would be owned by 51 percent by PSBs and the remainder by private sector lenders.
NARCL wants to take over the identified bad loans from the lenders. The leading bank with an offer in hand from NARCL will opt for a ‘Swiss Challenge’, in which other asset rebuilding players will be invited to improve the offer made by a chosen bidder to find a higher valuation of a non-asset. productive for sale. .
The company will take care of those assets that are provided 100 percent by the lenders. Banks have identified around 22 bad loans worth Rs 89 billion to be transferred to NARCL in the initial phase.
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