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MUMBAI : As attempts to get India’s bad bank up and running get delayed, about 20% of the assets originally planned for transfer in two tranches has already been resolved, said a person aware of the development.
“Almost ₹40,000 crore of bad loans have been resolved since the announcement was first made," the person cited above said on condition of anonymity.
He said that by the time it is set up there could be more that gets resolved. After Finance Minister Nirmala Sitharaman announced plans to set up a bad bank in February 2021, bankers had said that about ₹2 trillion of bad loans would be gradually transferred to the entity. It suffered from delays after the Reserve Bank of India (RBI) said it was unhappy over the proposed structure. Lenders then presented a revised proposal to the regulator.
Under the new structure approved by the regulator, the bad bank—the National Asset Reconstruction Co. Ltd (NARCL)—will acquire and aggregate the bad loan accounts from banks, while India Debt Resolution Co. Ltd (IDRCL) will handle the resolution process under an exclusive arrangement.
However, although already set up, the institution is still saddled with delays and has time till 30 June to initiate the first transaction in order to meet RBI licensing rules.
“The identification of accounts and due diligence is almost done. They are in the final lap of getting approvals ready and making binding offers to banks. We expect that [it is] a couple of weeks away," Swaminathan Janakiraman, managing director, State Bank of India (SBI) told reporters on Friday.
There are global parallels to taking the bad bank route in cleaning up stressed assets. An oft-cited example is that of Danaharta, a sovereign bad bank created in Malaysia in 1998 to clean bad loans after it reached unsustainable levels. However, India has in the past tried experimenting with the bad bank design in a somewhat limited form but has not seen quantifiable success. In 2004, the government set up Stressed Asset Stabilization Fund (SASF) and hived off stressed assets from IDBI Ltd.
Mint reported on 6 April that banks have missed the 31 March deadline to transfer the first tranche of toxic assets to the newly-formed bad bank because of procedural delays. In January, the bad bank received all regulatory approvals and SBI chairman Dinesh Khara had announced that lenders plan to transfer at least ₹50,000 crore of toxic assets to it by 31 March.