16 Lenders Join Forces to Form India's Bad Bank

All 12 public sector banks in India, as well as 4 private lenders, have agreed to invest in India's long-debated bad bank. The organization's structure, as revealed by Finance Minister Nirmala Sitharaman, is coming together, with the company expected to be operating later this year.

16 lenders have agreed to invest in the National Asset Reconstruction Company of India Ltd., according to the sources. According to the sources, they will each contribute ₹6,000 crore in stock capital.

Furthermore, Canara Bank would be the sole sponsor of the NARCL, with a 12% ownership. An ARC must have at least one sponsor, as per current standards. State Bank of India will be the company's second-largest stakeholder, with a 9.9% stake.

According to the sources, four private banks, including HDFC Bank Ltd., ICICI Bank Ltd., Axis Bank Ltd., and IDBI Bank Ltd., will hold a combined 15% stake in NARCL.

All lenders have either provided an in-principle agreement or gained approval from their respective boards to participate.

NARCL was registered as a corporation with the Registrar of Companies last week. Currently, the NARCL board is made up of shareholder candidates from banks that have received all relevant permissions. The asset reconstruction business will now begin selecting independent directors to the board.

Currently, NARCL's operations are overseen by a five-member committee led by Rajkiran Rai, chairman of the Indian Banks' Association. Padmakumar Nair of SBI has already been recommended by the committee as the NARCL's chief executive, who would be confirmed by the company's board once completely appointed. With the framework in place, the company would shortly apply to the Reserve Bank of India for an ARC licence.

The government-owned Power Finance Corporation Ltd and Rural Electrification Corporation Ltd, which were previously expected to join banks in acquiring a stake in NARCL, have yet to finalise their plans. Before investing in the ARC, these corporations would need approval from the Power Ministry and other government ministries, he said.

Once the NARCL has been granted a licence by the RBI, it would begin by purchasing the 22 stressed accounts shortlisted for sale by banks in the first round. The banking sector's total exposure to these accounts exceeds ₹82,000 crore. These accounts are fully provisioned, allowing banks to sell them without any haircuts or additional provisioning.

Banks are finalising accounts that will be sold to the NARCL in the second round, according to the two persons.

Meanwhile, the administration is still debating the scope of the assurance it will issue. A guaranteed amount of ₹31,000 crore has been discussed in informal negotiations, but permissions are still pending, according to the sources.

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