Bad bank: Govt guarantee seen costing Rs 30,600 crore

By: |
June 18, 2021 3:30 AM

Govt won't infuse capital into the proposed entity, banks will; yet, govt expected to give guarantee on the security receipts issued by the body

This will be well below the peak of 11.2 per cent seen at the end of fiscal 2018. (File)This will be well below the peak of 11.2 per cent seen at the end of fiscal 2018. (File)

The Indian Banks’ Association (IBA) has estimated that the government may have to fork out not more than Rs 30,600 crore if it offers guarantee on the security receipts (SRs) issued by the National Asset Reconstruction Company (NARCL) while acquiring bad loans from lenders, a top banker told FE.

“The prospects of recovery from some of the bad loans look promising. So, government guarantee on SRs, subject to its approval, may not cost more than this amount. Details are being worked out by the IBA, and NARCL will be operationalised soon,” he said.

Although the government backed the setting up of NARCL, it wouldn’t infuse capital into it; instead, participating banks would put in the equity. Nevertheless, bankers expect the government to give guarantee on the SRs, which will make the resolution process more viable and attractive.

Earlier, financial services secretary Debasish Panda had said banks would have the option to transfer several large stressed assets (of at least Rs 500 crore each) worth Rs 2.25 lakh crore to NARCL initially.

The IBA, which is spearheading efforts to establish NARCL, has zeroed in on five consultants to expedite the process. It has sought quotations from SBI Capital Markets and Oliver Wyman for advisory services; from E&Y for tax consultations; AZB & Partners for legal consultations; and AON Consulting for HR services.

NARCL is expected to acquire stressed assets at net book value by offering 15% of it upfront (in cash), and the rest (85%) in SRs. Once the bad loan is resolved, realisation for the relevant bank would be in sync with its SR interest in that asset.

The IBA is also working out an “exit strategy” for those accounts that remain unresolved even after five years, said the banker.

Of the 101 non-performing assets (NPAs) initially reviewed, banks have zeroed in on 22 accounts amounting to roughly Rs 89,000 crore for transfer to NARCL in the first phase.

Already, the IBA has formed a core committee headed by its chairman (Union Bank of India managing director Rajkiran Rai) for setting up NARCL and the Indian Asset Management Company. The committee also comprises IBA chief executive Sunil Mehta, State Bank of India MD J Swaminathan, IDBI Bank MD and CEO Rakesh Sharma and ICICI Bank executive director Sandeep Batra.

The proposed asset management company, comprising professionals, will be set up within the broader NARCL structure that will work out the toxic assets and take appropriate decisions, including on selling them off to investors.

Get live Stock Prices from BSE, NSE, US Market and latest NAV, portfolio of Mutual Funds, Check out latest IPO News, Best Performing IPOs, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.

Next Stories
1Resignation of Bharat Fin CEO, CFO under board consideration: IndusInd
2RBI imposes Rs 1 cr penalty on Union Bank of India
3SBI signs MoU with Usha International for empowering women entrepreneurs