The National Asset Reconstruction Company Limited (NARCL), the so-called bad bank, has acquired three borrower entities, including Jaypee Infratech, with an aggregate debt exposure of Rs 21,349 crore in the fourth quarter of FY23, finance minister Nirmala Sitharaman told Parliament on Monday. The other two are SSA International and Helios Photo Voltaic.
This a far cry from the targets set for transfer of toxic assets to the NARCL. In October 2021, the NARCL got a licence from the central bank to start operations, and as per the initial target, it was to acquire a batch of toxic assets worth about Rs 90,000 crore by January 2022.
The minister, however, said that no recovery has been made in these accounts as of July 17, 2023.
NARCL has been set up as an asset reconstruction company with an aim to resolve stressed assets above Rs 500 crore each. The government has also approved extending a guarantee of up to Rs 30,600 crore to back security receipts issued by NARCL for acquisition of loan assets from lenders.
As per the plan, the NARCL will acquire bad assets by making an offer to the lead bank. Once its offer is accepted, the India Debt Resolution Company (IDRCL), which is being set up as an AMC under the NARCL, will manage the bad loans, add value to them and finally sell them off. In all, large NPAs worth Rs 2 trillion were estimated to be transferred to the NARCL over five years.
Bad loans had crossed Rs 8 trillion, and the NPA ratio had reached almost 12% in 2016-17. To strengthen public sector banks, between FY17 and FY21, the government infused over Rs 3 trillion.
In respect of SPML Infra, letter of approval for debt acquisition of Rs 1,994.9 crore has been issued by the lenders, and in-principal approval for the government guarantee has also been issued, the minister said quoting NARCL.
“Comprehensive measures have been taken by the Government and RBI to recover the bad debts, enabled by which, scheduled commercial banks have recovered a total amount of Rs 7.16 trillion (RBI provisional data for FY 2022-23) during the last five financial years,” Sitharaman said.
These measures include, change in credit culture has been effected, with Insolvency and Bankruptcy Code (IBC) fundamentally changing the creditor-borrower relationship, taking away control of the defaulting company from promoters/owners, and debarring wilful defaulters from the resolution process.
To make the process more stringent, personal guarantor to corporate debtor has also been brought under the ambit of IBC.
Prudential Framework for Resolution of Stressed Assets was issued by RBI in 2019 to provide a framework for early recognition, reporting and time bound resolution of stressed assets, with a build-in incentive to lenders for early adoption of a resolution plan.
