Bad bank loans to clean up the proposed bad bank structure, experts say. On September 16, Finance Minister Nirmala Sitharaman announced the issuance of an independent guarantee of up to Rs 30,600 for security receipts to be issued by National Asset Reconstruction Company Limited (NARCL). NARCL will take over consolidated assets and the proposed AMC will seize and dispose of them to consumers in order to determine the value of depreciated assets, he said.
The proposed India Debt Resolution Company Ltd (IDRCL) with PSU banks with 49 per cent stake will be managed professionally in the management and resolution of depreciated assets.
NARCL will be issuing bad loans to banks under the 15:58 framework where 15% of total assets will be provided in cash and other security receipts. FM said part of the security receipts would be supported by the government.
The guarantee represents the difference between the face value of the asset and the value recognized from the sale or disposal of the asset. In the first phase, compressed assets costing Rs 90,000 crore with the exception of Rs 2,00,000 compressed assets will be transferred to NARCL.
Banks will be delivering goods to NARCL where full conditions have been imposed.
Bank accounts to keep clean
Experts say the proposed move will strengthen bank accounts.
Anil Gupta, Vice President and Head of Sector – Financial Sector Estimates, ICRA said, “NARCL prepaid bills in banks will go straight into profit making and banking.”
Gupta adds, “However, NARCL’s ability to resolve these assets in a timely manner will be crucial to the provision of bank repayments. We need to see how NARCL increases the 40 40-50 billion prepaid bills in banks.”
This is a good and strong step towards the banking system and a systematic approach to treating bad assets, said Ashok Paranjape, Managing Partner at MDP Partners.
According to Paranjape, If banks get 15 per cent earlier, the amount will be higher compared to certain cases where the entire NCLT route process takes place, lenders get a single digit refund.
Debasish Panda, Finance Secretary at a press conference said, “Banks are interested and willing to go as they want to get their money back.
NARCL Licensing Approval Expected Soon
The Indian Banks ’Association (IBA) had sought a license from the RBI to establish a Rs 6,000 crore National Asset Reconstruction Company (NARCL). NARCL was introduced in July after registration with the Registrar of Companies (RoC).
also read : Manish Chokhani and Ashok Kurian resigned from this big position in Zee Entertainment
According to reports, Padmakumar M Nair, CGM of the Stress Assets Resolution Group at SBI will be the head of NARCL.
Once an RBI license has been obtained, NARCL can be used immediately. It would be interesting to see how some of the existing ARCs can compete with NARCL given that NARCL is armed with a royal guarantee, said Ashish Pahariya, Associate Partner at DSK Legal.
The limited scope of the king’s guarantee (i.e. full loan) may have helped other ARCs to help them compete with NARCL, adds Pahariya.
The operation of the NARCL will also create a shelf for cash-generating assets, and these can be used by the NCC’s NARCL for risk-taking, and value-added to both O&M organizations and their creditors, said Chairman Davinder Sandhu and co-founder of the Co, Primus Partners.
It is hoped that NARCL will become a smaller and more functional structure, important to comfort private lenders who are expected to contribute 49% of NARCL funds, added Sandhu.
Regarding the management, Panda said, “We will have some vigilance in the government to provide any necessary support but the management will be fully operational.”
The ARC license is in the process of being issued by the RBI, Panda said.
