Pvt players to hold 51% stake in AMC

The rest 49% stake will be owned by the public sector, the bankers said on condition of anonymity, adding the final shareholding ratio is yet to be decided. Public sector banks want to keep the entity a majority privately-owned structure, to ensure flexibility in decision-making and avoid the purview of the three Cs: Central Bureau of Investigation (CBI), Comptroller and Auditor General of India (CAG), Central Vigilance Commission (CVC), they said.

Indian banks are burdened with toxic assets of ₹7.38 trillion, and the pandemic is expected to add quite substantially to that list. As announced in the Union budget on 1 February, the government wants to create a bad bank to house bad loans of ₹500 crore and above, in a structure that will contain an asset reconstruction company (ARC) and an AMC to manage and recover dud assets.

“There is interest from the private sector as this presents an opportunity to manage assets worth ₹2.25 trillion for a management fee. Lenders are discussing the quantum of management fee that these asset managers will be entitled to," said the first person quoted above. ARCs charge 1.5-2% of the assets as management fee every year. Lenders sell stressed loans to ARCs at a discount, either in exchange of cash or a mix of cash and security receipts. These receipts are redeemable as and when the ARC recovers the specific loan.

The second banker said the idea is to keep the capital base of the AMC just at the required level of ₹100 crore, with the private sector owning the majority. “Once the plan is ready, we will approach the Reserve Bank of India (RBI) and the finance ministry for approval," said the second banker cited above, adding that candidates are being screened to ensure that there is no conflict of interest.

The government announced last month it will not invest in the bad bank. Mint reported on 9 February that banks are looking for a sovereign guarantee for the proposed bad bank in the form of security receipts issued against asset transfers, to avoid additional provisions in the process. Bankers have backed a bad bank idea so they can focus on credit flow once bad loans are out of the way.