Reserve Bank of India grants licence to NARCL under Sarfaesi Act

The Reserve Bank of India (RBI) has granted the National Asset Reconstruction Company (NARCL), which is seeking to turn around bad loans worth Rs 2 trillion, the licence to register as an asset reconstruction company (ARC). 

The licence to NARCL, dubbed as bad bank, was granted by the central bank on Monday, said an official. The approval to the entity has been accorded under Section 3 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act 2002.

Section 3 of SARFAESI Act states that an entity cannot start the business of securitisation or asset reconstruction without obtaining a certificate of registration, and should have funds of at least Rs 2 crore or an amount not exceeding 15 per cent of the total financial assets acquired or to be acquired by the ARC.

State-owned lenders State Bank of India (SBI), Union Bank of India, Punjab National Bank (PNB) and Indian Bank have picked up over 12 per cent stake each in NARCL. SBI, Union Bank of India and Indian Bank have picked up 13.27 per cent stake each in NARCL, while PNB has bought 12.06 per cent. 

The NARCL has been incorporated under the Companies Act, and public sector banks will hold 51 per cent in the bad bank. The remaining will be held by private banks and financial institutions.

About 16 public and private sector banks have put in Rs 5,000-6,000 crore in the bad bank. That will be utilised by it to pay 15 per cent cash to the lenders while purchasing their bad loans. The remaining 85 per cent will be paid through security receipts guaranteed by the government. 

The newly formed NARCL expects to recover between Rs 50,000 crore and Rs 64,000 crore through the resolution of bad loans worth Rs 2 trillion.