Bad bank taking over to resolve NPAs worth Rs 2 lakh crore

Private sector asset reconstruction (ARCs) companies may also be allowed to bid higher the NARCL

The Union Cabinet easing the way for a extended clean-up of bad loans in the banking system.
 
The union cabinet on Wednesday had cleared a rupees 30,600 crore guarantee programme for equities to be issued by the newly incorporated ‘bad bank’ for taking over and resolving non-performing assets (NPAs) that is amounting to rupees 2 lakh crore.
 
Financial Services Secretary Debashish Panda said that the Reserve Bank of India is in the task of granting a licence for the National Asset Reconstruction Company Limited (NARCL).
 
Debashish Panda said that rupees 90,000 crore worth toxic assets worth that the banks have already fully provided, will move to the NARCL.
 
Nirmala Sitharaman, the Finance Minister of India has stated that the union Cabinet’s decision to extend a five-year guarantee for NARCL-issued equites receipts to banks that have completed the entire cycle of cleaning up India’s banking system and which have began with the recognition of the extent of bad loans in 2015.
 
Under the recommended mechanism, the NARCL will acquire assets by making an proposal to the lead bank.
 
Private sector asset reconstruction (ARCs) companies may also be allowed to bid higher the NARCL.
 
Independently, public and private lenders will merge forces to set up an India Debt Resolution Company (IDRC) which  will manage these assets and try to raise their value for final resolution.
 
Sitharaman said that a cash payment of 15 percent would be made to the banks based on some valuation and the rest will be given as equities receipts.
 
When the NARCL and the IDRC will finally resolved the asset, ideally as a going concern and not via liquidation proceedings.
 
The finance minister said the balance 85 percent held as security receipts that would be given to the banks.
 
For the time being, there are 28 ARCs in the private sector, to which Sitharaman said that they did not take up big ticket resolutions, which was a need that felt for union government-backed security receipts.
 
Public sector banks will have a 51 percent ownership in the NARCL with shareholding along with that of public sector financial institutions will be curbed at 49 percent for the IDRC, alongside the private lenders bringing in the rest of the share capital.
 
Debashish Panda said that nearly sixteen banks also including private players, would put up about rupees 6,000 crore as equities for the NARCL.

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