NARCL capital base increases to Rs 1500 cr as new lenders join

Eight new banks, including private sector ICICI Bank, HDFC Bank, Axis Bank and IDBI Bank, invested in government-backed distressed asset manager National Asset Reconstruction Co Ltd (NARCL) earlier this week, increasing the total equity of the newly formed company. ten times to Rs 1,500 crore, said four people familiar with the transaction.

Existing shareholders injected more capital to maintain their shareholding at current levels while new shareholders picked up less than 5% each, the people said on condition of anonymity because the transaction is still not public.

“Thanks to the broadening of the capital base, NARCL now has sufficient reserves to buy bad debts from banks, which is expected to start from April. The last injection was completed earlier this week, at which all existing shareholders participated with private sector lenders.. We now have a solid foundation to build the business and start operations,” said one of the four people named above.

Apart from the four new private sector lenders, Bank of Maharashtra (BoM), Indian Overseas Bank (IOB), UCO Bank and Punjab & Sind Bank (P&S) are the four new public sector shareholders.

Canara Bank, the sponsor of NARCL, is the main shareholder with 12% of the capital. Other major public sectors, namely State Bank of India (SBI), Union Bank of India (UBI), Bank of Baroda (BoB) and Indian Bank hold 9.90% shares each, according to documents consulted by ET. The Punjab National Bank (PNB) and the BoI each hold 9% of the capital.

BoM, IDBI Bank and ICICI are the fourth shareholders with 5% of the capital each. UCO Bank holds 4% while IOB, Axis and HDFC Bank hold 3% each. P&S is the smallest shareholder with a 2% stake, documents accessible by ET show.

NARCL will buy 15 bad loan accounts initially totaling Rs 50,000 crore. In total, the banks agreed to transfer 38 such loan accounts totaling almost Rs 83,000 crore to NARCL. These accounts are Rs 500 crore and above and do not include any account that is labeled as fraudulent.

“The legal and due diligence of seven of these accounts has already been completed and with the capital injection, we have now taken a major step in getting this entity up and running. each of these accounts that will subsequently be issued a Swiss challenge to ensure transparent price discovery. The process is already underway and there will be tangible progress from April,” the person quoted above said.

NARCL will acquire the assets at 15% in cash with security receipts issued for the remaining 85%, for which the government has approved a five-year guarantee of Rs 30,600 crore which will backstop banks in the event of lower realization.

The capitalization of the Indian Debt Resolution Co Ltd (IDRCL) which will be the principal agent of NARCL, will manage the resolution of these assets, is also in progress. This agency will be controlled by private sector banks which hold a 52% share in this company.

“This agency does not need a lot of capital. It started with a seed capital of Rs 80 lakh and a process is underway to increase its base to Rs 20 crore, with private sector banks holding the bulk of participation, as are public sector banks in NARCL. This infusion should also be completed in the coming days,” said a second person quoted above.

The establishment of a bad bank was a key reform measure of the 2021 budget and it was incorporated in June 2021. The IDRCL, the main agent of the NARCL, will be in charge of the resolution. It will not have a balance sheet and will only play the role of facilitator for the resolution of these loans.

The Deputy Managing Director of SBI, Subroto Biswas, is the Chairman of NARCL while the former Chief Managing Director of SBI, Padma Kumar Nair, is the CEO of the company.

The IDRCL is chaired by former SBI executive Diwakar Gupta, while Manish Makharia, head of the AIF vertical of SBI Mutual Fund, is the CEO.

Comments are closed.