The National Asset Reconstruction Company Ltd (NARCL), currently being put together by banks and other lenders, may structurally alter the balance-sheets of banks in such a way that it will further the Government’s agenda of divesting its stake in IDBI Bank and privatising two public sector banks (PSBs).
Once chunky stressed assets are out of the books, the valuation of these banks will improve, making them more saleable, opine market experts.
This can help the government realise more value from the proposed sale of its 45.48 per cent stake in IDBI Bank to a strategic buyer as well as privatisation of two PSBs.
Ramnath Krishnan, President-Ratings & Chief Rating Officer, ICRA, observed that NARCL might structurally help with disinvestment in state-owned banks should the Government consider this in the future. “It might structurally alter the balance-sheets of certain banks, which could make them more saleable should disinvestment be an opportunity seriously considered by the Government,” Krishnan said.
Referring to IDBI Bank’s healthy provision coverage ratio (PCR), Mangesh Kulkarni, Research Analyst, Almondz Global Securities, assessed that with most of its legacy assets being provided for 100 per cent, it can straight away transfer them to NARCL. So, the path to divestment of Government’s stake in IDBI Bank and privatisation of two PSBs will be streamlined once NARCL starts operations, he added.
IBA sets the ball rolling
The Indian Banks’ Association (IBA) has set the ball rolling on NARCL with the appointment of State Bank of India’s Padmakumar M Nair as its new Chief. Nair is currently Chief General Manager with SBI’s Stressed Assets Resolution Group.
NARCL is being set up following Finance Minister Nirmala Sitharaman’s FY2022 Budget announcement that the high level of provisioning by public sector banks on their stressed assets calls for measures to clean up the bank books.
Stressed assets with principal outstanding of ₹500 crore and above, aggregating about ₹1.50- lakh crore, are expected to be transferred to NARCL.
At a recent press meet, Rakesh Sharma, MD & CEO, IDBI Bank, said large public sector and private sector banks will be investing in NARCL, with each bank taking less than 10 per cent stake. IDBI Bank will also consider investing in the company.