India’s first bad bank — National Asset Reconstruction Company — has finally received all approvals from the RBI and is now ready to start operations. NARCL was one of the key budget announcements last year by finance minister Nirmala Sitharaman and has gone live just days before the budget for 2022-23.

The banks have agreed to sell 28 non-performing assets (NPAs) worth Rs 83,000 crore to the bad bank, SBI chairman Dinesh Khara said. In the first phase, lenders will sell around Rs 50,335 crore of these bad loans to NARCL.

NARCL will subsequently hand over these assets to India Debt Resolution Company Ltd (IDRCL) which will be responsible for its resolution. While NARCL will be majority held by PSU banks, IDRCL will be majorly owned by the private sector lenders.

NARCL will purchase the loans from the lenders through a 15:85 structure, where it will pay 15 per cent of the sale consideration in cash and issue security receipts for the remaining 85 per cent.

The security receipts will be guaranteed by the government, Khara said at the press briefing. The government has cleared a guarantee amount of over Rs 30,000 crore against these receipts. The bad bank has been delayed because of differences between the banks and the RBI. The banks had pitched for a completely independent IDRCL to resolve assets, but the RBI did not approve such a structure.

Khara said NARCL will acquire and aggregate identified non-performing loans from banks. Further, IDRCL under an exclusive arrangement will handle the debt resolution process. The arrangement will be on a “principal-agent” basis.

“This unique public private partnership is envisaged to get the best talent in terms of ability to handle large exposures, benefit of aggregation, domain expertise in debt resolution processes, with personnel on boarded on terms and conditions that are market-driven,” Khara observed.

Padmakumar Nair, chief general manager from SBI’s stressed assets vertical will manage NARCL, while Manish Makharia, head of alternate investment fund, SBI Funds Management will head IDRCL.

Here, the SBI chairman pointed out that an unique feature that differentiates this entity from other asset reconstruction companies (ARCs) is that the SRs that will be issued will have guarantee from the Government. This guarantee will remain even if they are listed.