The Indian Banks’ Association (IBA) has moved an application to the Reserve Bank of India seeking a licence to set up Rs 6,000-crore National Asset Reconstruction Company Ltd (NARCL), or bad bank, according to sources.

NARCL was incorporated last month in Mumbai with the Registrar of Companies.

According to sources, after mobilising an initial capital of Rs 100 crore and fulfilling other legal formalities, the company has approached the RBI to get a licence to undertake the asset reconstruction business.

In 2017, the RBI raised the capital requirement to Rs 100 crore from the earlier level of Rs 2 crore, keeping in mind the higher amount of cash required to buy bad loans.

The RBI has its process and procedure for granting licence for such a business, sources said, adding, it could take the next few weeks to obtain licence from the regulator.

The RBI’s approval could come either in September or October, sources added.

Legal consultant AZB & Partners has been engaged to seek various regulatory approvals and fulfilling other legal formalities.

The IBA, entrusted with the task of setting up a bad bank, has put a preliminary board for NARCL in place.

The company has hired P. M. Nair, a stressed assets expert from the State Bank of India (SBI), as the managing director.

The other directors on the board are IBA chief executive Sunil Mehta, SBI deputy managing director S. S. Nair and Canara Bank’s chief general manager Ajit Krishnan Nair.

Finance minister Nirmala Sitharaman in Budget 2021-22, announced that the high level of provisioning by public sector banks of their stressed assets calls for measures to clean up bank books.

“An Asset Reconstruction Company Limited and Asset Management Company would be set up to consolidate and take over the existing stressed debt,” she had said in the budget speech. It will manage and dispose the assets to alternative investment funds and other potential investors for eventual value realisation, she had said.

Last year, the IBA made a proposal for the creation of a bad bank for the swift resolution of non-performing assets. The government accepted the proposal and decided to go for an asset reconstruction company and asset management company model in this regard.