FM reviews progress on ‘bad bank’ rollout, status of regulatory nods

FM reviews progress on ‘bad bank’ rollout, status of regulatory nods

Subject: Economy

Section: banking and finance

Content:

• The National Asset Reconstruction Company Ltd (NARCL), popularly referred to as the “bad bank” is intended to take over large value NPA accounts (over ₹500 crore) from the banks.
• With the account-wise due diligence nearing completion, the first set of accounts is expected to be transferred during July 2022.
• The remaining accounts are proposed to be taken over within the third quarter of the current financial year.
• NARCL is expected to pay up to 15 percent of the agreed value for the loans in cash, and the remaining 85 per cent would be government guaranteed receipts.
• These guarantees can only be invoked by banks on resolution or liquidation of the said assets.
• NARCL will take up 100 percent of provided bad loans from lenders worth ₹2 lakh crore, of which ₹90,000 crore will be transferred in the first phase.
• Public sector banks have 51 percent ownership in NARCL, which was incorporated in August 2021.
• The NARCL has been incorporated under the Companies Act and has applied to the RBI for license for as Asset Reconstruction Company.
  NARCL is basically a bad bank created by the government in the mould of an asset. State-owned banks will hold 51% stake, while FIs or debt management companies will hold 49%.
  Along with NARCL, a debt resolution firm, India Debt Resolution Company Ltd (IDRCL), has now been set up.
• IDRCL is a service company or an operational entity that will manage assets and bring in market professionals and turnaround experts. Public Sector Banks PSBs and Public FIs will hold a maximum of 49% stake and the rest will be with private sector lenders.