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MUMBAI : In its first year of operations, the National Asset Reconstruction Co. Ltd (NARCL) posted a loss of 5.9 crore, earning some interest from bank deposits and without any bad loans to manage.

From its incorporation on 7 July 2021 up to 31 March 2022, its revenue was at 9.6 crore. Of this, it earned 4.3 crore from interests on bank deposits, and 5.3 crore was from recovery of expenses on the setting up of the business on behalf of India Debt Resolution Co. (IDRCL).

NARCL and IDRCL, are the two key constituents of India’s bad bank. While NARCL will acquire and aggregate bad loan accounts from banks, IDRCL will exclusively handle the resolution process. NARCL’s expenses stood at 16.3 crore of which 12.6 crore was spent on legal and professional charges, and 24 lakh on advertisement. As on 31 March 2022, its cash and cash equivalents were at 1,265 crore, of which 1,261 crore was in fixed deposits. That apart, it also held deposits of 136 crore, including accrued interest. The bad bank was registered with RBI on 4 October 2021 but could not take over any asset in FY22. In fact, the first transfer was in January 2023, about 10 months after the original deadline of 31 March 2022. In FY22, NARCL shareholders included Canara Bank with a 12% stake; State Bank of India, Union Bank of India, Bank of Baroda and Indian Bank held 9.9% each; Punjab National Bank and Bank of India held 9% each; while Bank of Maharashtra, IDBI Bank and ICICI Bank have 5% stake, each.

“ARCs are at a historic juncture. They can create successful ARC stories by being alive to challenges transform into new shape. The choice before ARCs is between their ability to script and execute a good turnaround story or being consigned to history," NARCL said in its annual report. In the first year it worked on setting up the required infrastructure and obtaining regulatory approvals. To be sure, revenues earned by ARCs depend on the management fees paid by lenders, and redemption of security receipts. ARCs buy bad loans at a discount, in exchange for either cash or a mix of cash and security receipts, which are redeemable on the recovery of the loans.

NARCL will pay 15% of the total bid upfront in cash and the rest as security receipts guaranteed by the government.

Mint reported on 14 November that while the sale of Jaypee Infratech was set to be the first transaction with NARCL, bankers were awaiting the government guarantee to finalize the deal. Banks had announced plans to initially transfer 22 bad loan accounts of 89,000 crore to the NARCL. The aggregate amount of bad loans likely to be transferred in tranches will be 2 trillion.

Analysts are hopeful that NARCL will help bank rid themselves of the bad loan burden. Rating agency Icra said in December that while better health of the corporate sector bodes well for asset quality outlook, with gross non-performing assets (NPAs) estimated to decline to 3.9-4.3% by March 2024, sale of NPAs to ARCs, including NARCL, could further moderate these numbers.

ABOUT THE AUTHOR

Shayan Ghosh

Shayan Ghosh is a national writer at Mint reporting on traditional banks and shadow banks. He has over a decade of experience in financial journalism. Based in Mint’s Mumbai bureau since 2018, he tracks interest rate movements and its impact on companies and the broader economy. His interests also include the distressed debt market, especially as India’s bankruptcy law attempts recoveries of billions worth of toxic assets.
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