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Fast-track asset transfers to bad bank, IBA tells lenders

The IBA, which had spearheaded the NARCL initiative, has asked lead banks in consortiums to expedite deliberations on the issue of asset sale to the NARCL in joint lenders’ forum meetings, banking sources told FE.

NARCL recently made offer to banks for two assets, an important step towards commencing its operation. However, no sale of asset has been concluded yet.
NARCL recently made offer to banks for two assets, an important step towards commencing its operation. However, no sale of asset has been concluded yet.

The Indian Banks’ Association (IBA) has asked lenders to step up internal deliberations and finalise a list of large stressed assets within 15 days for subsequent transfer to the National Asset Reconstruction Company (NARCL).

The IBA, which had spearheaded the NARCL initiative, has asked lead banks in consortiums to expedite deliberations on the issue of asset sale to the NARCL in joint lenders’ forum meetings, banking sources told FE.

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The move comes at a time when an informal deadline for the sale of large non-performing assets (NPAs) of Rs 50,000 crore to the NARCL in the first phase has witnessed repeated extensions—from March to June to September now. This is despite the fact that the NARCL was announced in the Budget for FY22 and the government declared sovereign guarantee on the security receipts issued by the so-called bad bank in September last year. The guarantee is estimated to cost the exchequer Rs 30,600 crore over five years. Some bankers have blamed slow identification of stressed assets and resolution of certain procedural issues for the delay.

NARCL recently made offer to banks for two assets, an important step towards commencing its operation. However, no sale of asset has been concluded yet.

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Of late, some banks have started finalising the list of assets for transfer to the NARCL. Punjab National Bank (PNB), for instance, has zeroed in on eight NPA accounts worth Rs 2,486 crore. The bad bank is expected to begin its operations by September, IBA chairman and PNB MD AK Goel said recently. Indian Bank has also identified stressed assets worth Rs 2,500 crore for transfer in two phases.

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, which is being set up as an asset management company 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.

Panel for validation of loan restructuring process
Separately, the IBA has also decided to set up an expert panel under former Canara Bank chairman TN Manoharan, on top of a similar committee at each bank, as an industry-led initiative to validate various processes for restructuring of large loans above `500 crore. Manoharan was a member on the RBI’s expert committee on resolution framework for Covid-19 related stress.

PV Bharathi, former MD and CEO of the erstwhile Corporation Bank, will be the alternate chairman of the expert committee. The committee will also include Keshav Kumar, former deputy MD of State Bank of India; MR Biswal, former executive director at Union Bank; and Gopal Murli Bhagat, deputy CEO of the IBA (member secretary).

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