State-run lenders ask private peers to raise bad bank stake

State-run lenders have asked their private sector counterparts to raise their stake in National Asset Reconstruction Company Ltd (NARCL) and India Debt Resolution Company Ltd (IDRCL). This comes as the government has asked banks to speedily address procedural delays in the functioning of the two entities created for the resolution of distressed assets. Under the twin structure, IDRCL, an asset management company, is mandated to resolve the bad loans acquired by NARCL.

Last year in September, the union cabinet had given its approval for guarantees of Rs 30,600 crore to back security receipts issued by NARCL for acquiring stressed loan assets from banks.

is the sponsor bank for NARCL. It is proposed that eventually no bank will hold more than a 10% stake to ensure a diversified ownership for the ARC.

At present, SBI, and Indian Bank hold 13.27% each in NARCL, while Punjab National Bank holds 12.07% and Canara Bank owns 12%. As per the plan, state-run banks will hold a majority stake in NARCL.

"Private sector banks need to expedite the process of infusing the capital so that the individual stakes of public sector banks that are holding more than 10% stake comes down to a level permitted by the Reserve Bank of India," said an executive aware of the developments, adding that at present private sector lenders have only committed to take a stake in these two institutions set up to tackle bad loans.



"There were some issues including clearances from the Reserve Bank. We expect the process to be completed within this month," said a key executive at NARCL.

NARCL proposes to acquire stressed assets of about Rs 2 lakh crore in phases. In the first phase, fully provisioned assets of about Rs 90,000 crore are expected to be transferred to NARCL, while the remaining assets with lower provisions would be transferred in phase-II. It intends to acquire these through 15% cash and 85% in security receipts.

Under the existing structure, NARCL will aggregate and consolidate stressed assets for their subsequent resolution, while IDRCL will be a service company or operational entity which will manage the asset and engage market professionals and turnaround experts. Public sector banks and state-owned financial institutions will hold a maximum of 49% in IDRCL.