The Centre is not keen on the setting up of the Rs 5,000-crore National Asset Management Company (NAMCO) as it has concerns over funding it directly or indirectly, according to sources in the finance ministry.

NAMCO, mooted by Ficci and supported by many bankers, is meant to takeover, recover and rehabilitate the banking system?s stressed assets ? non-performing assets (NPA) and restructured assets ? in the infrastructure sector.

?This proposal will not pass muster with the government. Clearing it may attract criticism and give the government a bad name. Anyway, we have forwarded it to the Reserve Bank of India (RBI) for its comments,? a finance ministry official told FE.

According to the proposal sent to the ministry, NAMCO ? to be registered by the RBI as a special category asset reconstruction company (ARC) ? should be established under the finance ministry?s supervision with a capital of Rs 5,000 crore.A Ficci concept note on the proposal says NAMCO?s net-owned funds should be Rs 2,500 crore and in addition, NAMCO will raise another Rs 2,500 crore by issuing long-term bonds subscribed by the banking sector, taking the total capital to Rs 5,000 crore.

The proposal also says the finance ministry should encourage public sector banks (PSB) to take up to 49.9% equity in NAMCO, while the remaining will be from private financial institutions and private sector lenders, ensuring that it is not a public sector unit.

However, the PSBs taking a 49.9% stake is akin to the government indirectly capitalising the venture, an idea that the finance ministry is not comfortable with, the sources said. Besides, recent reports of financial difficulties of such ARCs, including ARCIL have increased

the government?s concerns, they said. Another main worry, sources said, is the Comptroller and Auditor General?s concerns over a similar experiment in the past called the stressed assets stabilization fund (SASF) that was set up in 2004. The SASF was meant to clean up IDBI?s balance sheet through a mechanism where the government gave Rs 9,000 crore to the SASF. There was criticism that it amounted to the government indirectly bailing out some promoters who were allegedly wilful defaulters.

The sources also said the NAMCO proposal comes at a time when the government, owing to fiscal constraints, may not even allocate any funds in the forthcoming regular Budget for capitalization of PSBs.

NAMCO?s high level of capital base, the Ficci proposal says, could enable it to acquire NPAs, restructured loans and other potential stressed assets to the tune of Rs 1 lakh crore. This could happen because as per the proposal big-ticket stressed assets in infrastructure sector will be transferred from the banking system to NAMCO.

NAMCO?s focus will be on large NPAs and restructured loans, the proposal says, adding that the threshold minimum size will be Rs 2,000 crore-loan outstanding from the banking sector. It wants the government to provide support to NAMCO?s management in raising remaining equity capital (50.1%) from the private sector.

Ficci also wants the government and the RBI to encourage PSBs to transfer their large-ticket stressed assets in specified industries to NAMCO. The proposal also says the RBI should ?provide necessary forbearance to the banks to amortise the losses incurred upon transfer of assets to NAMCO at fair market value over a longer tenor.?