NARCL aims to acquire ₹2 trillion stressed assets by FY26: DFS secretary Vivek Joshi

New Delhi: The government-backed bad bank, National Asset Reconstruction Company Ltd (NARCL), aims to take over ₹2 trillion worth of banks’ stressed or non-performing assets (NPAs) by FY26 after having achieved the ₹1-trillion mark in FY24, a senior finance ministry official told Mint.

As of July 2024, NARCL had acquired 18 accounts with outstanding loans of  ₹62,000 crore, while resolution plans have been approved for two accounts worth almost ₹33,000 crore, said Vivek Joshi, secretary of the finance ministry's department of financial services.

Bad banks

Bad banks are asset reconstruction companies that buy bad loans from commercial banks, manage them, sell them in the market and recover the money to liquidate the transferred assets. 

"The Swiss challenge process is completed for an account worth ₹591 crore, and the process (the Swiss challenge) has been initiated for six accounts worth about ₹30,000 crore," Joshi said.

Also Read: India's bad bank aims at ₹2 trillion stressed assets by September

"Due diligence is underway for 13 accounts worth about ₹36,000 crore," he added.

The Swiss Challenge method allows private players and state-backed companies to accept contracts from the government through the process of bidding.

Under this process, auctioneers invite counter-bids, following a bid, to select the best one. The original bidder has the right of first refusal to match the best counterproposal.

The method is used by many states like Karnataka, Andhra Pradesh, Rajasthan, Madhya Pradesh, Bihar, Punjab and Gujarat for roads and housing projects.

The plan to form a bad bank to clean up banks’ balance sheets was announced in the Union budget 2021-22 for taking up large loans of over  ₹500 crore.

However, the formation of bad banks suffered delays after the Reserve Bank of India said it was unhappy with the proposed structure, which prompted lenders to present a revised proposal to the regulator.

Under the new structure approved by the regulator, NARCL will acquire and aggregate the bad loan accounts from banks, while India Debt Resolution Co. Ltd (IDRCL), another entity, will handle the resolution process under an exclusive arrangement.

Joshi said the central government will not recapitalise NARCL during 2024-25.

"It has already been recapitalised by the government (earlier). So, there are no plans to increase their capital (through government recapitalisation) in FY25," he added.

Also Read: Are bad banks a bad idea?

At present, NARCL is in the process of resolving distressed loans related to several entities including Jaypee Infrastructure, Meenakshi Energy, Mittal Corporation, Rainbow Papers, Helios Photo, SSA International, Zion Panvel Tollway and Consolidated Construction, Coastal Energren, Rolta, McNally Bharat Engineering, Pioneer SAS Power, and Pink City Expressway, Haridwar Highway, SEW Krishnagar Baharampore Highways, Dharani Sugars, Madurai Tuticorin Expressway and Seya.

Speaking about the National Bank for Financing Infrastructure and Development (NaBFID), a specialized development finance institution supporting the infrastructure sector, Joshi said the government-backed entity is targeting to sanction loans worth ₹3.2 trillion in FY26.

He added that against a target of ₹2 trillion in FY25, NaBFID has already sanctioned ₹1.09 trillion by July 2024.

NaBFID has raised ₹25,516 crore during FY24 from the market to fund its operations.

ENDS