In the Union Budget 2021-22 meeting on February 1, Finance Minister Nirmala Sitharaman proposed setting up a bank or the ‘bad bank’ to buy the bad loans and other liquid holdings of another financial institution so that the original institution may clear its balance sheet.
Progressively, banks have singled out nearly 22 bad loans of the order Rs 89,000 crore, which they will transfer to the National Asset Reconstruction Company Ltd (NARCL), the upcoming bad bank, in the initial phase.
First Phase of ARC To See NPA Worth Rs 89,000 Cr
The MD and CEO of Union Bank of India, Rajkiran Rai G, who is also the chairman of the Indian Banks Association (IBA), a representative body of banks in the country, informed that the body has asked lead banks to call for meetings and keep an approval ready so that as soon as the ARC is formed, they can start the process.
“I think the assessment in the first phase was of 22 accounts of about Rs 89,000 crore for the system”, added Rai on Monday.
He also informed that the accounts which were identified are almost close to 100% provisions and hold exposure above Rs 500 crore.
“As banks, we have prepared the ground, identified accounts which can go to the ARC in the first phase and have arrived at this number,” he entrusted.
Rai has ensured that the decided 22 accounts have undergone thorough checks, where the lead banks have already passed it through dedicated meetings with other banks and got a green light of approval to transfer them to the ARC, whenever it is formed.
“Once the ARC is formed, the management will look at these assets and only when they find that it is worthwhile buying, they will make an offer. Let us not preempt the decision of ARC to buy these assets.”
Rai has also floated another important piece of information, according to which the initial estimate that ARC can take on is calculated to be about Rs 2 lakh crore of bad loans.
This number has been estimated by the IBA and the banking industry, and the implementation of the same will be carried forward in stages.