Banks to transfer 15 accounts worth Rs 50,000 crore to NARCL in FY22

The two arms of India’s bad bank – National Asset Reconstruction Company (NARCL) and India Debt Resolution Company (IDRCL) – have received all the requisite approvals, including from the Reserve Bank of India (RBI), State Bank of India (SBI) chairman Dinesh Khara said on Friday. The banking sector will transfer 15 assets worth Rs 50,000 crore to NARCL in FY22, he said.

NARCL will acquire and aggregate the identified non-performing asset (NPA) accounts from the banks, while the IDRCL, under an exclusive arrangement, will handle the debt resolution process. “This exclusive arrangement will be as per the scope defined in the debt management agreement being executed between the two entities. The arrangement will be on the principal-agent basis and final approval and ownership for the resolution will lie with NARCL as the principal,” Khara said.

A total of 38 accounts aggregating to Rs 82,845 crore have been identified for transfer to NARCL. Transfers will happen in a phased manner, with a Rs 50,000-crore tranche getting transferred in the first phase. NARCL will try to identify and acquire assets on a 15:85 cash-cum-security receipts (SR) structure, with government-backed SRs being issued in favour of transferring lenders.

After the Budget for FY22 formulated the dual structure for the bad bank and banks set up the institution, the process got delayed as the RBI expressed its reservations about the structure. Earlier this month, banks put forward a proposal for a revised structure involving a principal-agent relationship between NARCL and IDRCL.

Public sector banks have taken a majority stake in NARCL, while IDRCL will majorly be owned by private banks.

“IDRCL is expected to bring in superior resolution techniques, preserve the value and showcase the brownfield assets and attract domestic as well as foreign investors and also AIFs (alternative investment funds),” Khara said, adding, “This will maximise value for all stakeholders. It is also expected to free the bandwidth as well as capital for lending bankers, which can be put to more gainful use.”

Both the companies have their respective boards in place, Khara said. SBI chief general manager from the stressed assets vertical Padmakumar Nair will be the chief executive for NARCL and SBI Mutual Fund’s EVP for AIFs Manish Makharia will head IDRCL.

While banks had initially identified assets worth Rs 2 lakh crore on the basis of the Rs 500-crore cut-off for resolution by the bad bank, a few accounts from the original universe have been resolved over the past one year. The remaining set of unresolved accounts for which joint lenders’ forum has met and taken a decision to transfer to NARCL involves a total exposure of Rs 83,000 crore. For these remaining accounts, the process of transfer is still on in a phased manner and will be completed over the next year.

Khara explained that while acquiring assets, NARCL will receive inputs on valuation and related matters from IDRCL. Thereafter, banks will need to hold a Swiss challenge auction. “Once all that process is over, NARCL will be giving the quote to the banking system. That is when the asset gets transferred from the banking system to NARCL,” Khara said. The assets will then be passed on to IDRCL, and it, in turn, will start the process for resolution.