India will finally have its "bad bank" as early as next week if things go as per plan. Three people involved in the matter told CNBC-TV18 that the Indian Banks Association (IBA) recently filed an application with the Registrar of Companies at the ministry of corporate affairs (MCA) to incorporate both the asset reconstruction company and its debt management company.
The National Asset Reconstruction Company Ltd (NARCL) and the entity which will manage the bad loans- the India Debt Management Company Ltd (IDMCL) are expected to become legal entities within a week, with the MCA approval expected very soon, according to people in the know.
All public sector banks led by Canara Bank are in talks to hold an equity stake in NARCL, said one of the people quoted earlier. In an exchange filing earlier, Canara Bank said its board had given in-principle approval to be the lead sponsor of the bad bank, with a 12 percent stake in the entity. Canara Bank has sought RBI’s approval for the same. The other public sector banks and state-owned Rural Electrification Corporation (REC) are also expected to hold under 10 percent stake each.
Private banks may have equity participation in IDMCL, said one of the people quoted earlier. "ICICI Bank, HDFC Bank, Axis Bank and IDBI Bank will together hold a significant stake in IDMCL," this person said, adding that their boards would have to individually ratify the proposal.
NARCL will take over the bad loans from banks by paying 15 percent in cash and 85 percent as security receipts. The security receipts will be backed by a government guarantee, which is likely to ensure the face value of the SRs, CNBC-TV18 had earlier reported.
The government is expected to provide a guarantee of Rs 31,000 crore for a period of five years for the NARCL.
CNBC-TV18 had earlier reported that banks had identified Rs 82,496 crore worth of bad loans that could be transferred to NARCL in the first phase. These are across 22 large accounts, which have been 100 percent provided for by banks.
These include names like Videocon’s VOVL (Rs 22,532 crore total exposure), Reliance Naval and Engineering Limited (Rs 8,934 crore), Amtek Auto (Rs 9,014 crore), Jaypee Infratech (Rs 7,950 crore), Castex Technologies (Rs 6,337 crore), GTL Limited (Rs 4,866 crore), Visa Steel (Rs 3,394 crore), Wind World India Limited (Rs 3,161 crore), Lavasa Corporation (Rs 1,424 crore), Consolidated Construction Consortium Limited (Rs 1,353 crore), and others.
Also read: RBI allows Centrum-BharatPe to acquire PMC Bank: What BharatPe CEO has to say about its future
Most of these are legacy accounts where banks have not had much success with resolutions so far, but are hopeful debt aggregation by NARCL will lead to faster recoveries.
According to people in the know, the State Bank of India has identified NPAs with about Rs 20,000 crore outstanding to be transferred to the NARCL. Punjab National Bank has identified Rs 8,000 crore worth of NPAs, Union Bank of India Rs 7,800 crore of NPAs to be transferred to the National ARC. Similarly, the Bank of India has identified about Rs 5,500 crore of assets for transfer, and Indian Bank about Rs 1,900 crore.
First Published: IST