Business News/ Industry / Banking/  SBI, PNB, Canara Bank, 5 others buy stake in bad bank

Eight public sector banks have come on board to lead the first round of capital infusion into National Asset Reconstruction Co. Ltd (NARCL) or the so-called ‘bad bank’, documents reviewed by Mint showed.

According to the latest corporate filings, Canara Bank has purchased 12 million shares of 10 each, Bank of Baroda (BoB), State Bank of India (SBI), Union Bank of India and Indian Bank have bought 9.9 million shares each; Punjab National Bank (PNB) and Bank of India have bought 9 million shares each. Bank of Maharashtra has purchased 5 million shares.

Their combined investment is at 74.6 crore.

A person aware of the development said these are the initial investors, and the pool will be increased as more lenders join NARCL, including private-sector lenders. As part of the bad bank, an asset management company (AMC) will also be created. “Private lenders will join the asset reconstruction company (ARC) as well as the AMC as investors. However, they are in the process of taking board approvals at the moment. We will have enough capital to tackle bad loans," said the person cited above.

Mint reported last week that NARCL has been registered in Mumbai with a paid-up capital of 74.6 crore and will soon seek a licence from the central bank to operate as an ARC.

Documents showed that some of the objectives of NARCL include acquiring, investing, transferring, selling, disposing of or trading in securitized debts, asset-backed securities or mortgage-backed securities or asset-backed securitized debt, among others.

Once fully functional, the bad bank is expected to help clean up the pile of bad loans from banks’ balance sheets, allowing lenders more room to lend and revive credit flow. As of 31 March, 7.5% of all bank loans had turned bad.

Mint reported on 8 March that state-run banks leading the effort to build India’s first bad bank want private entities to take a 51% stake in the AMC. Meanwhile, public sector banks are likely to hold the majority in the ARC. The bad bank will be headed by Padmakumar Madhavan Nair, a stressed assets expert from SBI.

An email sent to Indian Banks’ Association remained unanswered till press time.

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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Updated: 20 Jul 2021, 06:02 AM IST
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