After govt guarantees, next on NARCL's agenda: Get a licence, build team

Banks identify assets to be moved, but rules need to be framed first: Officials

With government guarantees in hand, the focus of National Asset Reconstruction Company (NARCL) will be on getting licence, building a team, ground work to raise funds and making offers to buy out bad assets.

Public sector executives said banks have already done work on which assets are to be moved to NARCL. But the company can make formal offers to buy out after it gets a licence from the Reserve Bank of India (RBI) and rules are framed.

RBI permit is expected in Q3 (October-December 2021). Following that, the transfer of the first tranche of assets (Rs 90,000 crore) at negotiated price would happen before the close of FY22. The remaining assets with lower provisions would be transferred in phase II.

While banks have already infused capital into the asset reconstruction company (ARC), it may take a call on raising additional funds either through fresh equity or debt or a combination of both. “We need to see how NARCL raises this cash of Rs 40-50 billion to be paid upfront to banks,” said Anil Gupta, vice-president at ICRA. The focus of NARCL is on resolution of cases and the aim would be to enhance value and maximise returns from sale. This will need support from professionals — bankers and lawyers.

After getting a licence, the ARC would begin recruitment of experts at market-linked packages. At present, the ARC has a small team of people on deputation from public sector banks.  NARCL will make upfront cash payments to banks. This will immediately be accretive for the profitability and capital of banks. However, the ability of NARCL to resolve these assets in a time-bound manner will be critical for future provision writeback by banks, said a banker. The selling of sovereign-backed security receipts (SRs) in the markets to realise cash could be beneficial for the bank's profitability and capital. The market appetite and valuation of these SRs by market participants remain uncertain.

Sri Narayanan, director, CRISIL Ratings, said, NARCL has multiple options for resolution, and selective availability of capital may restrict the role of private ARCs in corporate assets. The retail and SME segments provide opportunities for ARCs to build a niche for themselves, especially given that these segments need an operationally-intensive set up that may not interest other investor classes.