India’s bad bank is set to roll out operations after receiving all regulatory approvals and lenders are readying to transfer at least Rs 50,000 crore of toxic assets by 31 March.

The total realisable value is estimated to be 18% of the Rs 50,000 crore of bad loans. Of this, the banks will get 15% upfront cash while transferring bad loans to the National Asset Reconstruction Company Ltd (NARCL) and the remaining 85% will be in the form of security receipts (SRs). 

 “Banks have agreed to transfer 15 accounts with approximately Rs 50,000 crore outstanding to the NARCL in the first phase by the end of the current financial year,” said State Bank of India chairman Dinesh Khara.

Banks have already identified 38 large stressed accounts worth Rs 82,845 crore to be transferred to the NARCL in phases. The proposal is to transfer Rs 50,000 in the first phase and then oversee the resolution before transferring more loans to the bad bank.

The earlier plan was to transfer Rs 2 trillion of non-performing loans but since many resolutions took place in the past year, the amount was scaled down.

“Some of the high value assets identified last year have already been resolved while some that were declared as fraud have been excluded from the identified list,” Khara said. 

The loans that will be transferred to the NARCL are fully provided by the banks.

SBI managing director J Swaminathan said the universe of Rs 2 trillion was identified on the basis of a minimum of Rs 500 crore as the cut-off loan size for transfer. So, this book will be dealt with over a period of time—either till it is resolved with the lenders or it gets transferred to NARCL," he said. 

For the remaining accounts, processes are still on in a phased manner and will happen over the next year, Swaminathan added. 

After the Reserve Bank of India (RBI) expressed reservations over the proposed structure of a bad bank, lenders presented a revised proposal to the regulator. Under the new structure approved by the RBI, the NARCL will acquire and aggregate identified the bad loan accounts from the banks while the India Debt Resolution Co. Ltd (IDRCL) will handle the debt resolution process under an exclusive arrangement.

"There were certain concerns being raised but eventually both entities have got the requisite approvals. The SRs, issued by the NARCL, will be guaranteed to the extent of 85% by the government of India," Khara said, adding that IDRCL will independently help in resolving the assets.

IDRCL is expected to bring in superior resolution techniques, preserve value, showcase the brownfield assets and attract investors and alternative investment funds (AIFs). Aggregation and IDRCL’s expertise in stress resolution will aid in faster recoveries, Dinesh Khara said.

The bad bank structure will maximise value for all stakeholders. It is also expected to free bandwidth as well as capital for the lending bankers, Khara added.

While public sector banks led by Canara Bank hold majority stake in NARCL, IDRCL will be majority-owned by private sector banks ICICI Bank, Axis Bank and HDFC Bank will hold 15% stake each in IDRCL while IDBI Bank will have 9% ownership. “This unique public-private partnership is envisaged to get the best of the talent in terms of the ability to handle the large exposures and have the benefit of aggregation," Khara said.

Padmakumar Nair, chief general manager from SBI's stressed assets vertical, will manage the NARCL while Manish Makharia, head of Alternate Investment Fund, SBI Funds Management, will handle IDRCL. Subrata Biswas, the nominee director on the board of NARCL, will be the interim chairman while Diwakar Gupta will continue to be the chairman of IDRCL.