SBI's Padmakumar M Nair named as CEO of proposed bad bank

Indian banks are sitting on gross NPAs of nearly 8 percent.

State Bank of India’s Padmakumar Madhavan Nair has been named the Chief Executive Officer (CEO) of the National Asset Reconstruction Company Limited (NARCL) or what is commonly called as Bad Bank, according to people familiar with the development.

Nair is currently serving as the chief general manager (CGM), in-charge of stressed assets in SBI. He has been in charge of this department for the last few years and has experience in stressed assets management for long years.

"Nair is an excellent choice for this post," said a former SBI official who has worked with Nair. "He is an expert on stressed assets resolution. He needs to only set up a new team," said the official who didn't want to be named.

Finance Minister Nirmala Sitharaman announced the creation of a bad bank in 2021 Union Budget. The bad bank will hold stressed assets which can be sold on to investors at a reduced price, Finance Minister Nirmala Sitharaman said in her Budget speech.

The new entity will be in the form of an asset reconstruction company/asset management company to help the banking system get rid of the existing stock of problematic loans. The bad bank will absorb the existing stock of non-performing assets (NPAs) of the banks and will attempt resolution through a professional approach.

The concept of asset reconstruction companies (ARCs) has been around for many years in India. As the name suggests, ARCs are in the business of acquiring assets and attempts to reconstruct these assets over a period of time to find potential buyers.

Among the different entities operating in India in the asset reconstruction space, the oldest is Asset Reconstruction Company India (Arcil). In fact, Arcil is also owned by a clutch of financial institutions, including State Bank of India (SBI), IDBI Bank, ICICI Bank (ICICI), Punjab National Bank (PNB) and Avenue India Resurgence Pte.

Indian banks are sitting on gross NPAs of nearly 8 percent. A substantial chunk of large NPAs on the books of Indian banks are unresolved for several years. The FM’s announcement came at a time when banks are likely to witness a surge of NPAs in the wake of COVID-19. The RBI has projected the GNPAs to grow to close to 15 percent by September this year in a worst-case scenario. Going by the available information so far, the proposed bad bank too will be an entity owned by different banks and government will not fund the project or take ownership in the entity.

Unlike Arcil, which is essentially a private company, the proposed bad bank will have a public sector character since the idea is mooted by the government and majority ownership is likely to rest with state-owned banks. This is very important, say experts. Many PSBs have in the past shied away from transferring NPAs to private ARCs fearing investigations in the later stages. Being a ‘sarkari’ ARC, the bad bank will likely see more participation from PSBs, said senior PSB bankers. “They (PSBs) will feel safe to do business with this company,” said one banker on condition of anonymity.