The Department of Financial Services (DFS) has set up a committee under SBI Chairman C.S. Setty to address the hurdles faced by the National Asset Reconstruction Company Limited (NARCL), commonly known as the Bad Bank.
About NARCL (Bad Bank):
NARCL came into the scene in mid-2021. NARCL has been incorporated under the Companies Act and has received license from RBI as an Asset Reconstruction Company (ARC).
NARCL serves as an aggregator of stressed assets (non-performing assets or NPAs), aiming to resolve or liquidate them efficiently.
It operates by acquiring these loans at a mix of cash (15%) and government-backed security receipts (SRs) for the remainder. This structure is designed to provide financial stability and assure banks during the resolution process.
Public Sector Banks (PSBs) hold a 51% stake in NARCL, ensuring that it remains under government oversight.
A ₹30,600-crore guarantee facility for SRs was introduced in 2021 to encourage banks to transfer assets to NARCL.
Progress and Challenges:
Since its establishment in mid-2021, NARCL has acquired 22 accounts involving ₹95,711 crore of stressed loans, with a focus on large-value assets (above ₹500 crore).
Despite the ambitious target of transferring ₹1 lakh crore worth of stressed assets to NARCL by March 2025, progress has been slower than anticipated.
The primary reason is the mismatch in pricing expectations between banks and NARCL, coupled with concerns over the valuation of distressed assets.
Objective of the New Committee
The committee, chaired by SBI’s C.S. Setty, will be tasked with identifying a fresh list of accounts for transfer to NARCL.
This effort seeks to bridge the gap between banks and the Bad Bank in terms of expectations and accelerate the resolution process.
Way Forward
The success of NARCL will hinge on its ability to address the pricing concerns of banks, streamline the transfer of assets, and maximize recovery from stressed loans.
With government backing and oversight, NARCL is positioned to play a crucial role in cleaning up the banking sector’s balance sheets, fostering financial stability, and supporting credit growth.
Conclusion; This initiative reflects the government’s commitment to resolving systemic issues in the banking sector, but achieving the ambitious targets will require concerted efforts to align stakeholder interests and operational efficiencies
