Yet another agency, the National Asset Reconstruction Company Ltd (NARCL), euphemistically called a Bad Bank, was being constituted by the Government of India for the resolution of large size loans defaulted by the private corporate houses. As usual, the PSBs will own a majority stake in NARCL where profits are not expected.
The management of the stressed assets acquired by NARCL will be made by India Debt Resolution Co. Ltd. (IDRC), where the PSBs shareholding will be capped at 49%, with private lenders holding majority stake.
In it, the new avatar will acquire NPAs above ₹500 cr. from commercial banks at book value against 15% cash payment and rest 85% in security receipts (SRs) issued by the entirety with government guarantee valid for five years.
The Government projects to guarantee security receipts issued by the NARCL to the tune of ₹30,600 crore to resolve non-performing assets (NPAs) totalling ₹90,000 crore in the first phase. A back of the hand calculation reveals that in order to acquire the bad corporate debt of ₹90,000 crore, ₹36,000 crore is projected to be paid in cash and SRs thereby covertly effecting an across the board ‘write-off’ of ₹54,000 crore or 60% of the loan. In this manner, it is projected to acquire ₹2,00,000 crore of bad debt.
The NPAs of the scheduled commercial banks was ₹8.35 lakh crore in March this year, of which about 77.9% were loans unpaid by large corporate borrowers mostly from the PSBs. The Government claimed that over ₹5 lakh crore worth of NPAs were recovered in the last six years but the fact that ₹10.83 lakh crore of corporate dues were written off was not mentioned.
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