The Indian Banks’ Association (IBA) has filed an application with the corporate affairs ministry for the incorporation of the National Asset Reconstruction Company (NARCL), which will pave the way for its swift operationalisation, banking sources told FE.
Not just significant lenders but all public-sector banks (PSBs), barring Punjab & Sind Bank, have evinced interest in selecting up stakes in the so-named negative bank, one of the sources stated.
The IBA – which is spearheading the initiative to set up the NARCL – has also held talks with REC, in search of its contribution to equity, he added. “The discussions with REC (which finances rural electrification projects) have been moving towards a positive outcome,” the supply stated. No private bank has however agreed to place in capital but talks are nevertheless on.
While Canara Bank has announced it would be the sponsor of the NARCL and hold a 12% equity, other significant banks are anticipated to choose up just about 10% every. Punjab National Bank (PNB) managing director and chief executive SS Mallikarjun Rao has stated his bank would hold below 10% in the negative bank, though Union Bank of India MD & CEO and IBA chairman Rajkiran Rao G has stated the lender would acquire 9%. PNB and Union Bank have identified negative loans worth about Rs 8,000 crore and Rs 7,800 crore, respectively, for transfer to the NARCL.
Meanwhile, the IBA has finalised the write-up of association as nicely as memorandum of association for the NARCL so that the asset reconstruction corporation requires off immediately.
Sources had earlier told FE that the finance ministry could quickly seek Cabinet approval for a program to present sovereign assure on the safety receipts (SRs) issued by the NARCL though acquiring negative loans from lenders. This would price the government Rs 30,600 crore more than 5 years.
A leading banker had last week stated the price to the exchequer will not exceed Rs 30,600 crore, as estimated by the IBA, as the prospects of recovery from some of the negative loans looked promising.
Though the government has backed the setting up of the NARCL, announced in the Budget for FY22, it wouldn’t infuse capital into it rather, participating banks would place in the equity. Nevertheless, it is set to give assure on the SRs to make the negative loan resolution course of action more viable and desirable.
An asset management corporation, comprising experts, will also be set up inside the broader NARCL structure, which will work out the toxic assets and take acceptable choices, such as on promoting them off to investors.
Financial services secretary Debasish Panda had earlier stated banks would have the alternative to transfer many significant stressed assets (of at least Rs 500 crore every) worth Rs 2.25 lakh crore to NARCL initially. The IBA is also working out an “exit strategy” for these accounts that stay unresolved even following 5 years.
Of the 101 non-performing assets (NPAs) initially reviewed, banks have zeroed in on 22 accounts amounting to roughly Rs 89,000 crore for transfer to NARCL in the initially phase.
NARCL is anticipated to obtain stressed assets at net book worth by supplying 15% of it upfront (in money), and the rest (85%) in SRs. Once the negative loan is resolved, realisation for the relevant bank would be in sync with its SR interest in that asset.