The Indian Banks' Association (IBA), which is entrusted with the task of setting up a bad bank, has moved an application to the Reserve Bank of India seeking licence to set up a Rs 6,000-crore National Asset Reconstruction Company Ltd (NARCL).

NARCL has approached the RBI seeking an asset reconstruction company (ARC) licence, a source said. The licence may be obtained after a few weeks, he added.

As reported earlier by indianbankingnews.com, NARCL was incorporated on 7 July with an authorised capital of Rs 100 crore.

Legal consultant AZB & Partners is helping the bad bank company to seek various regulatory approvals and complete other legal formalities.

NARCL has tapped State Bank of India’s Padmakumar Madhavan Nair to be the managing director while the other directors are IBA chief executive Sunil Mehta, SBI deputy managing director Salee Sukumaran Nair and Canara Bank chief general manger Ajit Krishnan Nair.

As reported earlier, banks will initially transfer bad loans worth Rs 89,000 crore from 22 large value accounts to the NARCL.

An estimated Rs 2 trillion of soured loans is likely to be transferred in tranches to the bad bank, allowing banks to clean up their balance sheets and focus on their core lending activities.

NARCL will absorb bad loans of Rs 500 crore and above even as Indian banks are saddled with over Rs 7 trillion of non-performing assets (NPA).

The government had announced the setting up of the NARCL in the Union Budget for 2021-22 to resolve large value accounts that remained on the books of the banks.

Earlier, state-owned Canara Bank had expressed its intent to be the lead sponsor of NARCL with a 12% stake.

The proposed NARCL would be 51% owned by public sector banks while the rest would be held by private-sector lenders.