Rs 50,000 crore of NPAs may be transferred to NARCL in FY22

Overall, 38 accounts worth Rs 83,000 crore identified: SBI chairman

Lenders are set to transfer 15 large-ticket stressed accounts worth Rs 50,000 crore to the National Asset Reconstruction Company Limited (NARCL) in the first tranche by the end of the current financial year. Overall, 38 such accounts totalling Rs 83,000 crore have been identified for transfer to the bad bank, Dinesh Kumar Khara, chairman, State Bank of India (SBI), said on Friday.

NARCL is a government-backed distressed asset aggregator owned by leading state-owned and private sector banks.

“All the requisite approvals for setting up NARCL and the India Debt Resolution Company Limited (IDRCL), including from the Reserve Bank of India (RBI), have now been received, and both companies are ready to commence their business,” said Khara.

Initially, it was estimated that around Rs 2 trillion of stressed assets of the banking system would be identified and transferred to NARCL for resolution. The amount has come down because some of the assets have been resolved.

“We expect that the final number will be somewhere around Rs 1.5 trillion,” the SBI chairman said.

While assets worth Rs 83,000 crore have been identified so far, this does not mean there are no more accounts that could be transferred. For the remaining accounts, the process is still on and this will probably happen over the next year in a phased manner, he said.

SBI is the lead bank in 12 of the 15 cases identified for the first phase. The bank will see a transfer of loans worth Rs 20,000 crore to NARCL, a bank executive said. SBI, Union Bank of India and Indian Bank hold 13.27 per cent stake each in NARCL, while Punjab National Bank owns close to 12 per cent.

GETTING DOWN TO WORK

• The National Asset Reconstruction Company will acquire and aggregate the identified NPA accounts from banks
• It will pay 15% of the stressed assets' sale value through cash and issue security receipts for the remaining 85%
• India Debt Resolution Company will handle the debt resolution process

While NARCL is majorly owned by public sector banks, IDRCL will be majorly held by private sector banks. NARCL will acquire and aggregate the identified non-performing accounts from the banks. IDRCL, on the other hand, will handle the debt resolution process under an exclusive arrangement.

The arrangement will be on a principal agent basis, and final approval and ownership for the resolution will lie with NARCL. This arrangement will also be in full conformity with the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act as well as outsourcing guidelines of the RBI, Khara said.

“The principal agent relationship is only to the extent of entering into an arrangement between NARCL and IDRCL. And, when it comes to the ability to have the accounts resolved, IDRCL will have full freedom,” Khara further said.

SBI has sent two of its officials on secondment -- Padmakumar Madhavan Nair, as managing director and chief executive of NARCL, and Manish Makharia as head of IDRCL.

NARCL will acquire the identified stressed assets on a 15:85 structure, wherein it will pay 15 per cent of the sale value through cash and issue security receipts (SRs) for the remaining 85 per cent. These SRs will be issued in favour of the transferring lenders and have been guaranteed by the government. Last year, the Union government had given approval for guarantees worth Rs 36,000 crore to back security receipts issued by NARCL.

The whole assets transfer process has seen some delays as reports had suggested that the central bank was not very happy with the structure. But, Khara said, whatever time was taken, it was to iron out some of the issues, which could have possibly come up in future.

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