Punjab National Bank, IDBI, Bank of India among others exit ARCs as they move to set up ‘Bad Bank’

(Image: Shutterstock)

Several banks are moving to divest their stake from Asset Reconstruction Companies (ARCs) to free up capital in preparation to launch the National Asset Reconstruction Co. Ltd (NARCL) commonly known as ‘Bad bank’ that they will commonly own.

Three public sector banks—Union Bank of India, Indian Bank, and Bank of India—said they jointly intend to sell up to 88.4 million shares, constituting up to 90.31 percent of the total equity share capital of ASREC India Limited, a Mumbai based ARC, Mint reported adding that SBI Capital Markets Ltd (SBI Caps) has been appointed to advise on the transaction. Reportedly, the potential bidder “should have a net worth of not less than ₹100 crore or should have assets under management of not less than ₹500 crores.”

Punjab National Bank had put out its stake of 10.01 percent in Arcil, one of the oldest ARCs of India, for sale. Similarly, IDBI Bank is also vying to sell its 19.8 percent stake in Arcil, the report added.

Having secured a licence from the Registrar of Companies, the Indian Banks' Association (IBA) will soon move an application to the Reserve Bank of India (RBI) to set up a Rs 6,000-crore National Asset Reconstruction Company Ltd (NARCL) or bad bank, according to PTI sources.

The RBI in 2017 raised 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.

The initial capital would come from eight banks who have committed, and the NARCL would expand the capital base to Rs 6,000 crore subsequently after the RBI's nod, the sources said.

IBA, entrusted with the task of setting up a bad bank, has put a preliminary board for NARCL in place. The company has hired PM 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 SS Nair and Canara Bank's Chief General Manager Ajit Krishnan Nair.

The proposed NARCL would be 51 per cent owned by PSBs and the remaining by private-sector lenders.

[Inputs from PTI]