With registration of the company, the process for putting an initial capital of Rs 100 crore is on as per the guidelines, the sources said adding that the next step will be audit and then move application to the RBI seeking licence for the asset reconstruction company.
The RBI in 2017 raised capital requirement to Rs 100 crore from the earlier level of Rs 2 crore keeping in mind higher amount of cash required to buy bad loans.
Legal consultant AZB & Partners has been engaged for seeking various regulatory approvals and fulfilling other legal formalities.
The initial capital would come from eight banks who have committed, and the NARCL would expand the capital base to Rs 6,000 crore subsequently after the RBI’s nod, the sources said.
Other equity partners would join after the RBI’s licence and even the board would be expanded, the sources added.
IBA, entrusted with the task of setting up a bad bank, has put a preliminary board for NARCL in place. The company has hired P M Nair, a stressed assets expert from State Bank of India (SBI), as the managing director. The other directors on the board are IBA Chief Executive Sunil Mehta, SBI Deputy Managing Director S S Nair and Canara Bank‘s Chief General Manager Ajit Krishnan Nair.
Finance Minister Nirmala Sitharaman in Budget 2021-22 announced that the high level of provisioning by public sector banks of their stressed assets calls for measures to clean up the bank books.
“Asset Reconstruction Company Limited and Asset Management Company would be set up to consolidate and take over the existing stressed debt,” she had said in the Budget Speech. It will manage and dispose the assets to alternative investment funds and other potential investors for eventual value realisation, she had said.
Last year, IBA made a proposal for the creation of a bad bank for swift resolution of non-performing assets. The government accepted the proposal and decided to go for an asset reconstruction company and asset management company model in this regard.
Meanwhile, state-owned Canara Bank has expressed its intent to be the lead sponsor of NARCL with a 12 per cent stake.
The proposed NARCL would be 51 per cent owned by PSBs and the remaining by private sector lenders.
NARCL will take over identified bad loans of lenders. The lead bank with an offer in hand of NARCL will go for a ‘Swiss Challenge‘, wherein other asset reconstruction players will be invited to better the offer made by a chosen bidder for finding higher valuation of a non-performing asset on sale.
The company has picked up those assets that are 100 per cent provided for by the lenders. Banks have identified around 22 bad loans worth Rs 89,000 crore to be transferred to NARCL in the initial phase.