The Association of Indian Banks will soon transfer the request to the RBI to create a bad bank of Rs 6,000 cr

Having obtained a license from the Registrar of Companies, the Association of Indian Banks (IBA) will soon forward a request to the Reserve Bank of India (RBI) to establish a National Asset Reconstruction Company Ltd (NARCL) or a bad bank. of 6,000 crore rupees. , according to sources.

With the registration of the company, the process of setting up an initial capital of Rs 100 crore is underway as per guidelines, the sources said, adding that the next step will be the audit and then the transfer of the company. asks the RBI seeking a license for the asset reconstruction company.

The RBI in 2017 increased the capital requirement to Rs 100 crore from the previous level of Rs 2 crore keeping in mind the higher amount of cash needed to buy bad debt.

AZB & Partners legal consultant has been engaged to obtain various regulatory approvals and complete other legal formalities.

The initial capital would come from eight banks that have signed up, and NARCL would expand the capital base to Rs 6,000 crore thereafter after RBI approval, the sources said.

Other financial partners would join after the RBI license and even the board of directors would be expanded, the sources added.

IBA, responsible for setting up a bad bank, has set up a preliminary board for NARCL. The company hired PM Nair, a stressed asset 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.

In the 2021-2022 budget, Finance Minister Nirmala Sitharaman announced that the high level of provisioning by public sector banks to their stressed assets calls for measures to clean up the bank books.

“Asset Reconstruction Company Limited and Asset Management Company would be created to consolidate and take over 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, IBA proposed the creation of a bad bank for 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.

Meanwhile, state-owned Canara Bank has expressed its intention to be the main sponsor of NARCL with a 12% stake.

The proposed NARCL would be 51 percent owned by utility bodies and the remainder by private sector lenders.

NARCL will take over identified bad debts from lenders. The lead bank with an offer in hand from NARCL will go for a “Swiss Challenge”, in which other actors in the reconstruction of assets will be invited to improve the offer made by a chosen bidder to find a higher valuation of a non-performing asset for sale.

The company has recovered the assets which are 100 percent provided by the lenders. The banks have identified around 22 bad loans worth Rs 89,000 crore to be transferred to NARCL in the initial phase.

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