IBA moves RBI seeking licence to set up Rs 6,000-crore NARCL; approval likely in next few weeks

Representative image

The Indian Banks' Association (IBA) has moved an application to the Reserve Bank of India (RBI) seeking licence to set up a Rs 6,000-crore National Asset Reconstruction Company Ltd (NARCL) or bad bank, according to sources. NARCL was incorporated last month in Mumbai following the registration with Registrar of Companies (RoC).

According to sources, the company after mobilising an initial capital of Rs 100 crore and fulfilling other legal formalities has approached the RBI seeking licence to undertake asset reconstruction business. The RBI in 2017, raised the capital requirement to Rs 100 crore from the earlier level of Rs 2 crore, keeping in mind the higher amount of cash required to buy bad loans.

ALSO READ: Bandhan Bank Q1 profit drops 32% as provisions for bad loan rise

RBI has its process and procedure for granting licence for such business, sources said, adding, it could take next few weeks to obtain licence from the regulator. RBI's approval could come either in September or October, sources added.

Legal consultant AZB & Partners has been engaged to seek various regulatory approvals and fulfilling other legal formalities. IBA, entrusted with the task of setting up a bad bank, has put a preliminary board for NARCL in place. The company has hired P M Nair, a stressed assets expert from State Bank of India (SBI), as the managing director.

The other directors on the board are IBA Chief Executive Sunil Mehta, SBI Deputy Managing Director S S Nair and Canara Bank's Chief General Manager Ajit Krishnan Nair. Finance Minister Nirmala Sitharaman in Budget 2021-22, announced that the high level of provisioning by public sector banks of their stressed assets calls for measures to clean up bank books.

ALSO READ: FM Nirmala Sitharaman to launch national infrastructure monetization plan on August 23

"An Asset Reconstruction Company Limited and Asset Management Company would be set up to consolidate and take over the existing stressed debt," she had said in the Budget Speech. It will manage and dispose the assets to alternative investment funds and other potential investors for eventual value realisation, she had said. Last year, IBA made a proposal for the creation of a bad bank for swift resolution of non-performing assets. The government accepted the proposal and decided to go for an asset reconstruction company and asset management company model in this regard.

Meanwhile, state-owned Canara Bank has expressed its intent to be the lead sponsor of NARCL with a 12 per cent stake. The proposed NARCL would be 51 per cent owned by PSBs and the remaining by private-sector lenders.

NARCL will take over identified bad loans of lenders. The lead bank with an offer in the hand of NARCL will go for a 'Swiss Challenge', wherein other asset reconstruction players will be invited to better the offer made by a chosen bidder for finding a higher valuation of a non-performing asset on sale. The company will pick up those assets that are 100 per cent provided for by the lenders. Banks have identified around 22 bad loans worth Rs 89,000 crore to be transferred to NARCL in the initial phase.