Virendra Pandit
New Delhi: With the objective of removing one of the world’s largest piles of sourced debt from the balance sheet of financiers and accelerate lending, India has formally set up a ‘bad bank’: the National Asset Reconstruction Company Ltd. (NARCL).
It was registered on July 7 with the Registrar of Companies, with Padmakumar Madhavan Nair as its Managing Director and CEO, media reported on Tuesday. Earlier, he handled stressed assets resolution at the State Bank of India (SBI).
NARCL’s paid-up capital is Rs 74.6 crore (USD 10 million), the reports said.
Indian Banks’ Association (IBA) CEO Sunil Mehta will be a director on the Board of NARCL. The two nominee directors will be the SBI’s S. Sukumaran Nair and Canara Bank’s Ajit Krishnan Nair.
This ‘bad bank’ is expected to provide relief to Indian lenders struggling to bring down their massive bad loan pile that has eroded profit and constrained their ability to lend. It is likely to give a fillip to Prime Minister Narendra Modi’s attempts to boost credit flow to pump up the country’s economy that has shrunk the most since Independence in the wake of the pandemic that hit the world in 2020.
Finance Minister Nirmala Sitharaman had announced the setting up of this bank in February 2021 during her Budget speech. The Centre had decided to start the bad bank after an overhauled bankruptcy process, rolled out in 2016, did not yield the desired results.
The NARCL will be owned by government-run and private sector lenders and will allow financiers to transfer as much as Rs. 2 lakh crore (Rs. Two trillion) of soured loans and effectively free them from years of carrying and providing for these loss-making assets.