There are problems at the “bad bank.” After being established a year ago to eliminate sticky debts from high-street banks’ books, there are rumblings within the organisation that its distinctive dual framework is not doing as well as the government and its shareholders had initially anticipated.
Under the twin structure, the state-backed bad bank National Asset Reconstruction Company Ltd. (NARCL) gathers and purchases bad loans from lenders, while India Debt Resolution Company Ltd. (IDRCL), acting concurrently as a private sector entity, concentrates on the resolution of non-performing assets to increase the value of the loans and find a better suitor for the troubled borrowing company. NARCL, however, is coming to the conclusion that this exclusive agreement between a public sector principal functioning as an asset reconstruction company (ARC) and a private sector resolution agency is not turning out to be the best option.
Sources claim that during a meeting with the finance minister, representatives of the National Asset Reconstruction Company Limited (NARCL) noted the limitations of the twin structure.
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Bad Bank Issue already anticipated?
“The Reserve Bank has granted NARCL the ARC licence. So, in the end, even though IDRCL is involved in resolution, it is still NARCL’s responsibility to make the decisions. Why then do we need two organisations? Additionally, it entails higher expenses and an awkward structure. Many people in the (stress asset) market anticipated the issue of bad bank at the time of its emergence, but at the time it was believed that private sector companies would be able to resolve the issue more quickly.
In addition, a public-sector ARC may wind up spending more on due diligence by paying high fees to external consultants than a private sector stress asset firm because it is subject to government oversight and prefers safer solutions.
Avinash Kulkarni, CEO & MD of IDRCL, and Natarajan Sundar, MD & CEO of NARCL, did not return calls or texts regarding the bad bank situation.
The issue of the dual structure’s limitations came up as a result of NARCL falling far short of the desired loan acquisition. In FY23, it bought debts totalling Rs. 10,387 crore from 3 accounts, falling short of its own self-imposed goal to buy accounts totalling Rs. 50,000 crore.
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