Bad bank I Government guarantee for bad bank will be limited to Rs 31,000 crore

Government guarantee for bad bank will be limited to Rs 31,000 crore | Photo credit: BCCL


  • Several participating banks which are formed by several participating banks will soon obtain government approval
  • State Bank of India’s Padmakumar Nair appointed CEO of NARCL
  • Rs 82,500 crore NPA of 22 accounts already finalized to be transferred to NARCL

The government guarantee for the proposed bad bank could be capped at Rs 31,000 crore, as potential paybacks could be higher than expected from this institution which is expected to be in place soon, according to a report.

The government guarantee will cover any security receipts issued by the new failed bank when acquiring bad debt, according to the Economic Times report.

The amount of the collateral will be sufficient to cover any collateral receipts issued as lenders see higher recoveries and therefore the innovation of the government guarantee may not be at its full face value, the report added citing. sources.

The National Asset Reconstruction Co Ltd (NARCL), which several participating banks are expected to form soon, will be approved by the government. NARCL will acquire bad debts at their net book value, paying a consideration of 15% in cash and the remainder in security deposits. The seller will have a right, title or interest in the acquired NPA acquired by the Asset Reconstruction Company. When the bad loan is resolved, the bank is paid based on its SR interest in the loan. The government will guarantee the SRs that will support the sale and resolution of bad debts.

An exit strategy is also being developed for outstanding loans after five years.

In the first phase, public sector banks finalized 22 NPA accounts with Rs 82,500 crore in loans to be transferred to its NARCL. Of that total, up to 80% of dues belong to Amtek Auto, VOVL, Reliance Naval, Jaypee Infratech, Castex Technologies, GTL, Visa Steel and Wind World, according to another report from The Times of India.

Other accounts for sale to NARCL include Lavasa Corporation, Ruchi Worldwide, Consolidated Construction, and a few toll projects.

Padmakumar Nair of the State Bank of India has been appointed CEO of NARCL. It can only take stressed assets Rs 500 crore or more for resolution. There are over Rs 3 lakh crore of bad debt that fall into this category.

The Association of Indian Banks (IBA) has established a five-member central committee under the leadership of Union Bank of India Managing Director Rajkiran Rai for the establishment of NARCL and Indian Asset Management Co Ltd ( IAMCL) as part of the exercise. Other committee members include IDBI Bank Managing Director and CEO Rakesh Sharma, ICICI Bank Executive Director Sandeep Batra, SBI India Managing Director J Swaminathan, and IBA CEO Sunil Mehta.

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