In preparing for the formation of a so-called ‘Bad Bank’, the Indian Banks’ Association has asked lenders to furnish data on stressed accounts with principal outstanding above ₹500 crore, both under consortium and multiple banking arrangement.

This will help in assessing the capital required to float the ‘Bad Bank’, which has been envisaged as an ‘Asset Reconstruction Company (ARC)/Asset Management Company (AMC)’ structure, to clean up lenders’ books

The IBA is working with the Department of Financial Services and a few lenders to set up the ‘Bad Bank’, pursuant to the announcement by Finance Minister Nirmala Sitharaman in the Budget.

Specifically, banks have been asked to submit details of their stressed accounts exposure (fund and non-fund based as also debt investment) above ₹500 crore as on December-end 2020 under consortium/multiple banking arrangement (MBA). The data include both IBC and non-IBC cases.

Excluded entities

Fraud accounts, those in sight of resolution under the IBC and those under liquidation, accounts of financial service providers (such as NBFCs, mutual funds and broking firms), and quasi equity/equity and unsecured exposures have been excluded from the reporting format.

What this means is that the ‘Bad Bank’ will not buy lenders’ exposures to these set of accounts.

Banking expert Hari Hara Mishra said, “While an integrated platform (Bad Bank) for all high-value non-performing assets (NPAs) will facilitate debt aggregation and help faster resolution, bridging price expectation mismatch between banks and the proposed ARC may pose some challenge, given the complexity of security interest and varying charge particulars, which characterise the Indian lending landscape.”

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