Association of Indian Banks requests Reserve Bank of India license to establish Rs 6,000 crore National Asset Reconstruction Company Ltd
In 2017, the central bank raised the capital requirement to Rs 100 cr from the previous level of Rs 2 cr, keeping in mind the higher amount of cash required to buy bad debt.
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New Delhi
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Posted on 08.23.21 at 12:43 am
The Association of Indian Banks (IBA) has applied to the Reserve Bank of India for a license to establish the National Asset Reconstruction Company Ltd (NARCL) of Rs 6,000 crore, or bad bank, according to sources.
NARCL was incorporated last month in Mumbai with the Registrar of Companies.
According to sources, after raising initial capital of Rs 100 crore and completing other legal formalities, the company approached the RBI for a license to undertake the asset reconstruction activity.
In 2017, the RBI increased the required capital to Rs 100 crore from the previous level of Rs 2 crore, keeping in mind the higher amount of cash required to purchase bad loans.
The RBI has its process and procedure for licensing such a business, sources said, adding that it could take the next few weeks to get a license from the regulator.
RBI approval could come in September or October, sources added.
AZB & Partners legal consultant has been engaged to obtain various regulatory approvals and complete other legal formalities.
The IBA, responsible for setting up a bad bank, has set up a preliminary board for the NARCL.
The company hired PM Nair, a stressed assets expert from the State Bank of India (SBI), as its managing director.
The other directors on the board are IBA Managing Director Sunil Mehta, SBI Deputy Managing Director SS Nair, and Canara Bank Managing Director Ajit Krishnan Nair.
Finance Minister Nirmala Sitharaman, in the 2021-2022 budget, announced that the high level of provisioning by public sector banks to their stressed assets calls for measures to clean up the bank books.
“A limited asset reconstruction company and an asset management company would be created to consolidate and take over the existing stressed debt,” she said in the budget speech. It will manage and sell the assets to alternative investment funds and other potential investors for possible valuation, she said.
Last year, the IBA proposed the creation of a bad bank for the rapid resolution of non-performing assets. The government accepted the proposal and decided to opt for an asset reconstruction company and asset management company model in this regard.
