IBA seeks license from RBI to establish Rs 6,000 crore bad bank: Report

As per the sources, the company after settling an initial capital of Rs 100 crore and completing other legal formalities has moved ahead to the RBI seeking a license to accomplish an asset reconstruction business.

The Indian Banks’ Association (IBA) has appealed an application to the Reserve Bank of India (RBI) seeking license to establish a Rs 6,000-crore National Asset Reconstruction Company Ltd (NARCL) or bad bank, reported the sources. NARCL was integrated past month in Mumbai by registering itself with the Registrar of Companies (RoC).

As per the sources, the company after settling an initial capital of Rs 100 crore and completing other legal formalities has moved ahead to the RBI seeking a license to accomplish an asset reconstruction business. The RBI increased the capital requirement to Rs 100 crore in 2017 against the Rs 2 crore slab, taking into consideration the maximum amount of cash needed to buy bad loans.

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RBI has its process and procedure for granting licenses for such businesses, sources said, adding, it could take the next few weeks to obtain a license from the regulator. RBI’s approval could come either in September or October, sources added. Legal consultant AZB & Partners has been working to seek several regulatory approvals and settling other legal formalities.

Finance Minister Nirmala Sitharaman in Budget 2021-22, mentioned that the maximum level of provisioning by public sector banks of their target assets requires a measure to clean up bank books.

“An Asset Reconstruction Company Limited and Asset Management Company would be set up to consolidate and take over the existing stressed debt,” she had said in the Budget Speech. It will manage and dispose of the assets to alternative investment funds and other potential investors for eventual value realisation, she had said.

Last year, IBA made a proposal for the creation of a bad bank for swift resolution of non-performing assets. The government accepted the proposal and decided to go for an asset reconstruction company and asset management company model in this regard.

NARCL will add in known bad loans of lenders. The top bank with an associated offer in the hand of NARCL will arrive for a ‘Swiss Challenge’, in which other asset reconstruction players will be invited by a bidder for searching a better valuation of a non-performing asset on sale.