STRESSED ASSETS

STRESSED ASSETS

Topic: Economy

Section: Money and banking

Context: Banks’ plan to transfer 15 stressed assets aggregating about ₹50,000 crore to the National Asset Reconstruction Company Ltd (NARCL) by March end may face delay.

Concept:

Background:

• NARCL (also known as bad bank) has been set up by banks, will aggregate and consolidate select stressed assets (above ₹500 crore each) in the financial system for their subsequent resolution.
• Along with NARCL, a service company/ operational entity, India Debt Resolution Company Ltd (IDRCL), has also been floated for resolving these stressed assets.
• Public sector banks are holding majority stake in the ARC and Private sector banks are holding majority stake in the DRC.
• As recovery and resolution of stressed assets is a function of demand in the market, a total of 38 accounts aggregating to ₹82,845 crore have been identified for transfer to NARCL, according to a SBI statement issued on January.
• The transfer will happen in a phased manner, with about 15 stressed accounts aggregating to ₹50,335 crore expected to be transferred by March-end 2022 under Phase-I.
• NARCL will acquire the identified assets by paying the lenders 15 per cent of the acquisition value in cash and 85 per cent via security receipts (SRs). These SRs will be secured by government guarantee for their face value.

Issues:

• Due diligence and valuation of stressed assets, among others, is taking time to resolve. So, it is unlikely that banks will make haste in moving the identified stressed assets to NARCL by March-end 2022, say bankers.
• Moreover, NARCL has invited applications for the MD & CEO’s position from eligible candidates on or before March 16, 2022 – to push back the asset transfer process.

To know more about Bad Banks, please refer https://optimizeias.com/bad-banks-4/

To know about Asset Reconstruction Company, please refer https://optimizeias.com/asset-reconstruction-company/.