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The first bad bank, NARCL, comes into existence
By MK Shukla & Rakesh Ranjan- 15 Jul 2021
691New Delhi (15.07.2021): Union Finance Minister Nirmala Sitharaman has kept her promise. The National Asset Reconstruction Company Ltd (NARCL), whose formation as a bad bank was announced in her FY22 budget speech, has come into being with the legal approval given by the Ministry of Corporate Affairs. The next stage for its operationalization requires an RBI license as an Asset Reconstruction Company (ARC), for which the motion is already moved. Indianmandarins has learned that the capital structure of NARCL will be based on both equity and debt. The bulk of the equity portion as well as debt will be provided by PSBs. Canara Bank is said to have expressed a desire to hold the controlling share of 12% in NARCL. State Bank of India, Bank of Baroda, Bank of India, and IDBI Bank have also expressed their intent to hold shares in the new bad bank that may be capitalized up to ₹7,000 crores. Although the Central Government has allocated ₹31,000 crores for guaranteeing the receipts issued by NARCL, it will not enter into any direct or indirect equity participation in the new entity that will buy bad loans from banks according to the existing industry practice of paying 15% in cash and 85% in security receipts guaranteed by the GoI. Indianmandarins' analysis of open-source data shows that PSBs have already identified 22 assets worth about ₹82,500 crores that will be transferred to the bad bank in phases. Over the next few years, NARCL may prepare itself to acquire a higher quantum of stressed assets reaching up to ₹2-lakh crore.
The first bad bank, NARCL, comes into existence
By MK Shukla & Rakesh Ranjan - 2021-07-15 13:32:00
New Delhi (15.07.2021): Union Finance Minister Nirmala Sitharaman has kept her promise.
The National Asset Reconstruction Company Ltd (NARCL), whose formation as a bad bank was announced in her FY22 budget speech, has come into being with the legal approval given by the Ministry of Corporate Affairs.
The next stage for its operationalization requires an RBI license as an Asset Reconstruction Company (ARC), for which the motion is already moved.
Indianmandarins has learned that the capital structure of NARCL will be based on both equity and debt. The bulk of the equity portion as well as debt will be provided by PSBs. Canara Bank is said to have expressed a desire to hold the controlling share of 12% in NARCL.
State Bank of India, Bank of Baroda, Bank of India, and IDBI Bank have also expressed their intent to hold shares in the new bad bank that may be capitalized up to ₹7,000 crores.
Although the Central Government has allocated ₹31,000 crores for guaranteeing the receipts issued by NARCL, it will not enter into any direct or indirect equity participation in the new entity that will buy bad loans from banks according to the existing industry practice of paying 15% in cash and 85% in security receipts guaranteed by the GoI.
Indianmandarins' analysis of open-source data shows that PSBs have already identified 22 assets worth about ₹82,500 crores that will be transferred to the bad bank in phases. Over the next few years, NARCL may prepare itself to acquire a higher quantum of stressed assets reaching up to ₹2-lakh crore.
