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Banks’ plan to transfer 15 stressed assets aggregating about ₹50,000 crore to the National Asset Reconstruction Company Ltd (NARCL) by this month end may face delays due to teething problems at the transferee’s end.
With issues relating to due diligence and valuation of stressed assets, among others, taking time to resolve, it is unlikely that banks will make haste in moving the identified stressed assets to NARCL (also known as bad bank) by March-end 2022, say bankers.
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To be an additional mechanism for resolution of large stressed assetsMoreover, the move to change horses in midstream – NARCL has invited applications for the MD & CEO’s position from eligible candidates on or before March 16, 2022 – could push back the asset transfer process. Currently, Padmakumar Nair, Chief General Manager, State Bank of India, is managing NARCL.
Licensing condition
Referring to the Reserve Bank of India’s licensing condition requiring NARCL to commence business by March 31, a senior public sector bank official said, “It remains to be seen if RBI will extend the timeline for commencement of business or NARCL will do a symbolic transaction to commence business.”
NARCL, which has already been set up by banks, will aggregate and consolidate select stressed assets (above ₹500 crore each) in the financial system for their subsequent resolution. Public sector banks are holding majority stake in the ARC.
Along with NARCL, a service company/ operational entity, India Debt Resolution Company Ltd (IDRCL), has also been floated for resolving these stressed assets. Private sector banks are holding majority stake in the DRC.
“Recovery and resolution of stressed assets is a function of demand in the market. Demand has been muted for the last 3-4 years with respect to asset sales. So, asset sale is a very difficult job.
“The success of NARCL depends on what kind of team it builds and what kind of resolutions it brings. We are in a wait and watch mode,” said another PSB executive.
A total of 38 accounts aggregating to ₹82,845 crore have been identified for transfer to NARCL, according to a State Bank of India statement issued on January 28.
The transfer will happen in a phased manner, with about 15 stressed account aggregating to ₹50,335 crore expected to be transferred by March-end 2022 under Phase-I, per the statement.
Overall, chunky stressed assets aggregating about ₹1.50-lakh crore are expected to be transferred to NARCL.
NARCL will acquire the identified assets by paying the lenders 15 per cent of the acquisition value in cash and 85 per cent via security receipts (SRs). These SRs will be secured by government guarantee for their face value.
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