State Bank of India (SBI) Chairman Dinesh Kumar Khara said on Friday all the required approvals to set up the National Asset Reconstruction Company or what is popularly called a ‘bad bank’ has been granted, including by the Reserve Bank of India.
Finance Minister Nirmala Sitharaman in the Union Budget 2021-22 proposed to set up the new entities to help lenders in cleaning up their books by acquiring toxic assets.
Addressing a virtual press conference from Mumbai, SBI chairman said National Asset Reconstruction Company Ltd (NARCL) and India Debt Resolution Company Ltd (IDRCL) have received all requisite approvals including the required approvals from the Reserve Bank of India (RBI) to start operations. NARCL has been incorporated under the Companies Act and had applied to the Reserve Bank of India for license as an Asset Reconstruction Company (ARC). NARCL has been set up by banks to aggregate and consolidate stressed assets for their subsequent resolution. PSBs will maintain 51 per cent ownership in NARCL.
IDRCL is a service company/operational entity which will manage the asset and engage market professionals and turnaround experts. Public Sector Banks (PSBs) and Public FIs will hold a maximum of 49 per cent stake and the rest will be with private sector lenders.
Khara said NARCL will acquire and aggregate the identified NPA accounts from banks while 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’ to be executed between the two entities,” he said.
SBI Chairman said that this arrangement will be on a ‘Principal-Agent’ basis and final approvals and ownership for the resolution shall lie with NARCL as the Principal. This is as per the structure originally envisaged. This arrangement will also be in full conformity with provisions of SARFAESI Act as well as the Outsourcing guidelines of the Reserve Bank of India.
Both the companies will comply with applicable regulatory guidelines at all times. Public Sector Banks have taken a majority ownership in NARCL and IDRCL will be majorly owned by Private Sector Banks.
Khada said that this unique Public Private partnership is envisaged to get the best talent in terms of ability to handle large exposures, benefit of aggregation, domain expertise in O&M and debt resolution processes, with personnel on boarded on terms and conditions that are market driven. NARCL plans to acquire the identified assets on a 15:85 – Cash: SR structure and these SRs issued in favour of transferring lenders will be secured by Govt of India guarantee for its face value.
Both the companies have their respective Boards in place, consisting of seasoned professionals from the market. To start with both companies are having their MD & CEOs on a secondment basis. Padmakumar Nair, a Chief General Manager from SBI’s Stressed Assets vertical will manage NARCL while Manish Makharia, Head of Alternate Investment Fund, SBI Funds Management Pvt Ltd will be heading IDRCL. Subrata Biswas, the nominee director on the Board of NARCL will be the interim Chairman and Diwakar Gupta continues as the Chairman of IDRCL.
SBI Chairman said that a total of 38 accounts aggregating to Rs 82,845 crore has been identified for transfer to NARCL, however, the transfer will happen in a phased manner.
Under Phase one, about 15 accounts aggregating to Rs 50,335 crore are expected to be transferred in the current financial year, i.e. on or before 31st March 2022.