Tag: National Asset Reconstruction Company Ltd

Bank of Maha sees 15% credit growth, may not need capital infusion from govt, BFSI News, ET BFSI

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Bank of Maharashtra may not need capital infusion from the government this fiscal as it has adequate funds to meet the expected credit growth of 14-15 per cent, but may raise growth capital in the next quarter.

“Our capital adequacy ratio is 14.68%. As of now we don’t require any capital from the government. Capital is also a cost, the only thing is – when to raise the capital,” Bank of Maharashtra CEO A S Rajeev told ETBFSI in an interview.

The bank has raised Rs 400 crore towards equity in the current fiscal and Rs 1,000 crore as Tier-II capital two weeks back. If the Tier II capital is considered the adequacy ratio would rise to 15.50. The bank expects Rs 1,000 crore minimum profit in the current year, which would be added to the capital. It has also provided Rs 1,000 crore for Covid, which would be added to the capital if the provisioning is not required.

Credit growth

The bank sees credit growth in the infrastructure sector and segments such as hotels that are opening up with the easing of the pandemic. The MSME segment that was witnessing restructuring is also growing.

“The retail growth is on an average 15% in all banks. In our case, it is 17-18%. MSME is around 20% in spite of all these issues. So definitely it will be above 20% in this half year,” Rajeev said.

Home loans are growing 20% growth while auto 28%. The lender expects that the chip shortage will be sorted out in the second half of this fiscal.

Bank of Maha sees 15% credit growth, may not need capital infusion from govt

Outreach programme

The bank’s outreach programme is yielding 300-350 accounts with one credit outreach programme with loans of Rs 200-250 crore, he said, adding a recent SLBC in Pune it fetched loans of Rs 348 crore for the banks involved. The bank’s core business is improving with net interest margin at 3.27%. “If you’re able to maintain a NIM of 3% and you continue with 17% core profitability. And earlier NIM was affected by huge provisioning, now risk adjusted NIM is improving because the provisioning component has come down,” Rajeev said.

FinTech collaboration

The bank is investing a huge amount for FinTech and digital, and have tied with a number of companies, especially in the analytics space. The lender has tied up with around 15 companies for joint lending, including start-ups and NBFCs. The bank is also looking at buying stakes in FinTech firms and at leasing model.

Transfer to NARCL

The lender has identified around Rs 1,800 crore of loans for transfer to the National Asset Reconstruction Company Ltd and plans to shift Rs 3,500-4,000 crore fraud reported assets to the bad bank.



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Banks dole out over Rs 11,000 crore loans under govt’s credit outreach programme, BFSI News, ET BFSI

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State-owned banks and private banks have so far sanctioned loans worth over Rs 11,000 crore under the credit outreach programme. “As part of the government’s nationwide credit outreach programme that commenced on Oct 16, all PSU banks and private banks have sanctioned more than 193,000 loans totalling 111.68 bln rupees,” Finance Minister Nirmala Sitharaman‘s office tweeted.

Lenders sanctioned loans through 924 camps held in 405 districts from October 16-20.

The loan mela

Over 1 lakh borrowers availed business loans of about Rs 6,268 crore, followed by 62,616 borrowers availing agriculture loans of about Rs 1,874 crore.

Earlier this month, the finance ministry has asked PSU banks to start a nationwide loan outreach programme ahead of the festive season, and later.

Banks were asked to set targets of loans to be sanctioned during the district-wise outreach programme. They were also told to tie up with FinTech firms and non-banking financial companies to disburse loans to even small borrowers.

The banking system is bloated with liquidity, which has jumped from Rs 4.5 lakh crore in 2019 to over Rs 7.5 lakh crore currently, mainly due to weak credit demand.

The finance ministry feels that various sectors need credit support and asked banks to hold talks with exporters and various associations to support their loan needs.

FM announcement

Finance Minister Nirmala Sitharaman had announced a district-wise outreach to be undertaken by banks to help credit growth from October.

A push to credit growth from such outreach efforts will also help the momentum set by the stimulus packages, which have been extended by the government since the onset of the pandemic.

In late 2019, banks had conducted the “loan melas” in 400 districts to push up sagging credit growth. Even now, the credit growth is stuttering at around 6 per cent.

“I think it is too early to conclude whether there is a lack of demand… I don’t think it is time yet to conclude that there is no credit pick-up. Even without awaiting indications, we have taken steps to ramp up credit,” Sitharaman had said.

She noted that over Rs 4.94 lakh crore was disbursed by banks between October 2019 and March 2021 through the outreach initiatives.

Gross NPAs may rise

Gross non-performing assets (NPAs) of banks are expected to increase to 8-9 per cent in the current financial year, credit rating agency Crisil said in a report.

This will be well below the peak of 11.2 per cent seen at the end of fiscal 2018.

According to the agency, the COVID-19 relief measures such as the restructuring dispensation, and the Emergency Credit Line Guarantee Scheme (ECLGS) will help limit the rise in banks gross NPAs.

With around 2 per cent of bank credit expected under restructuring by the end of this fiscal, stressed assets comprising gross NPAs and loan book under restructuring should touch 10-11 per cent this fiscal, it said.

“The retail and MSME segments, which together form close to 40 per cent of bank credit, are expected to see higher accretion of NPAs and stressed assets this time around,” the agency’s senior director and deputy chief ratings officer Krishnan Sitaraman said in the report.

Stressed assets in these two segments are seen rising to 4-5 per cent and 17-18 per cent, respectively, by this fiscal end, he said.

The agency said the operationalisation of the National Asset Reconstruction Company Ltd (NARCL) by the end of this fiscal and the expected first-round sale of Rs 90,000 crore NPAs could lead to lower reported gross NPAs.

The report expects the corporate segment to be far more resilient. A large part of the stress in the corporate portfolio had already been recognised during the asset quality review initiated five years ago.



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NARCL may not hit this year’s fiscal outgo, says DBS Research, BFSI News, ET BFSI

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India’s bad bank is unlikely to impact this year’s fiscal outgo, according to a report by DBS Research.

The transfer of assets from banks to the National Asset Reconstruction Company Ltd (NARCL) will be in the form of ‘contingent liability’, which will be invoked when there is a shortfall upon resolution or liquidation.

Also read: Banks may sell Rs 1 lakh crore of fraud-hit loans to NARCL, ARCs

The transfer is likely to free up capital for banks, and price discovery is likely to be addressed by bad assets being bought at net book value, the report said

However, gross Non Performing Assets are likely to correct to the scale, while net NPAs will be a little changed.

Reform fine tuning, such as the announcement of the bad bank, strong external buffers, domestic equity outperformance and improving fiscal math have been positive for India’s economic narrative.

Also read: What are NARCL and IDRCL? How do they work and what is the plan?

India’s financial markets, including rupee, are no longer a part of the fragile five pack of economies, even as the US Federal Reserve prepares to taper its purchases of securities and bonds.

During the taper tantrum episode in 2013, India was part of the “Fragile Five,” representing a group of emerging market economies which were running weak external accounts and had poor cover for the external funding.

Compared with 2013, the rupee will be more resilient when the US Fed tapers asset purchases this time. The brokerage expects the Indian Rupee to hold its COVID-19 range of Rs 72-77 per US dollar into 2022.

India’s fiscal performance has been surprising this year, with the deficit reaching only 21.3% in April-July of the budgeted estimate, lower than 103% in April-July 2020, DBS Research said.

Revenues are outpacing expenditure, with net tax revenues at 34% in April-July, against 12.4% a year ago, and non-tax revenues at 58%, against 6.4% last year.

The onset of the third COVID-19 wave is likely to be less fatal as the economy seems to be having a better shock absorption capacity, the research said.

According to the report, employment, power consumption, and other indicators have reached pre-pandemic levels, benefiting from lower curbs but levelling off at highs into September.

However, this is unlikely to upgrade India’s overall sovereign rating. DBS Research expects ratings to be status quo.



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Banks may sell Rs 1 lakh crore of fraud-hit loans to NARCL, ARCs, BFSI News, ET BFSI

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Banks may offload about Rs 1 lakh crore of accounts with fraudulent activities to National Asset Reconstruction Company Ltd (NARCL) and other ARCs with the Reserve Bank of India allowed lenders to sell such loans.

In the last three years, banks have declared loan frauds amounting to Rs 3.95 lakh crore.

The new rule is part of the RBIs final norms on the transfer of loan exposures.

The move has opened a new avenue for ARCs, which till now were allowed to take over non-performing assets as well as loans which are in default for 60 days.

This bad loans that ARCs can take over include loan exposures classified as fraud as on the date of transfer provided that the responsibilities of the transferor with respect to continuous reporting, monitoring, filing of complaints with law enforcement agencies and proceedings related to such complaints shall also be transferred to the ARC, the central bank said. The transfer of such loan exposures to an ARC, however, does not absolve the transferor from fixing the staff accountability as required under the extant instructions on frauds.

Banks have to make 100% provision in four quarters for accounts tagged in the fraud category. In the case of non-performing assets without delayed recovery, 100% provisioning effectively happens over eight quarters.

Swiss challenge

Banks may sell Rs 1 lakh crore of fraud-hit loans to NARCL, ARCs

The RBI has clarified on the called Swiss Challenge Method, applicable while transferring stressed loans by lenders. The RBI had proposed de-regulate price discovery by departing from Swiss Challenge auction method, where the highest bid in the first round or unsolicited bid received becomes the base for seeking counter offers.

The central bank said that in cases where the aggregate exposure of lenders to a borrower whose loan is being transferred is above 1 bln rupees, Swiss Challenge method must be followed. In all other cases, the bilateral negotiations shall be subject to the price discovery and value maximisation approaches adopted by the transferor as part of the board approved policy, which may also include Swiss Challenge method, it said However, in case of such transfers used as means for resolution under the RBI’s Jun 7, 2019 circular, Swiss Challenge method would be mandatory irrespective of the exposure threshold.

The RBI said that lenders must have a board-approved policy on the adoption of Swiss Challenge method. The policy could include parameters such as a tolerance limit on haircut required by the lenders in the base-bid and minimum mark-up for over the base for seeking counter offers, the RBI said. Such minimum mark-up, difference between the challenger and the base-bid expressed as a percentage of the base-bid, must not be less than 5% and not be more than 15%.

The bad bank

Banks may sell Rs 1 lakh crore of fraud-hit loans to NARCL, ARCs

Finance Minister Nirmala Sitharaman on Thursday announced a Rs 30,600 crore government guarantee for the National Asset Reconstruction Company Limited (NARCL) for acquiring stressed loan assets, paving the way for operationalisation of the bad bank.

The finance minister in Budget 2021-22 announced the setting up of a bad bank as part of the resolution of bad loans worth about Rs 2 lakh crore.

The bad bank or NARCL will pay up to 15 per cent of the agreed value for the loans in cash and the remaining 85 per cent would be government-guaranteed security receipts (SRs). The government guarantee would be invoked if there is a loss against the threshold value.



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IBA moves RBI seeking licence to set up 6k-cr NARCL, nod likely soon, BFSI News, ET BFSI

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New Delhi: The Indian Banks’ Association (IBA) has moved an application to the Reserve Bank of India (RBI) seeking licence to set up a Rs 6,000-crore National Asset Reconstruction Company Ltd (NARCL) or bad bank, according to sources.

NARCL was incorporated last month in Mumbai following the registration with Registrar of Companies (RoC).

According to sources, the company after mobilising an initial capital of Rs 100 crore and fulfilling other legal formalities has approached the RBI seeking licence to undertake asset reconstruction business.

The RBI in 2017, raised the capital requirement to Rs 100 crore from the earlier level of Rs 2 crore, keeping in mind the higher amount of cash required to buy bad loans.

RBI has its process and procedure for granting licence for such business, sources said, adding, it could take next few weeks to obtain licence from the regulator.

RBI’s approval could come either in September or October, sources added.

Legal consultant AZB & Partners has been engaged to seek various regulatory approvals and fulfilling other legal formalities.

IBA, entrusted with the task of setting up a bad bank, has put a preliminary board for NARCL in place. The company has hired P M Nair, a stressed assets expert from State Bank of India (SBI), as the managing director.

The other directors on the board are IBA Chief Executive Sunil Mehta, SBI Deputy Managing Director S S Nair and Canara Bank’s Chief General Manager Ajit Krishnan Nair.

Finance Minister Nirmala Sitharaman in Budget 2021-22, announced that the high level of provisioning by public sector banks of their stressed assets calls for measures to clean up bank books.

“An Asset Reconstruction Company Limited and Asset Management Company would be set up to consolidate and take over the existing stressed debt,” she had said in the Budget Speech. It will manage and dispose the assets to alternative investment funds and other potential investors for eventual value realisation, she had said. ba



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Private banks too want the bad bank pie, BFSI News, ET BFSI

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With public sector banks queueing up to buy a bad bank stake, private lenders are also looking to invest in it.

Some private banks are seeking approvals to buy into National Asset Reconstruction Company Ltd (NARCL) or bad bank, though their stake will be lower than the PSBs.

Having secured a licence from the Registrar of Companies, the Indian Banks’ Association (IBA) will soon move an application to the Reserve Bank of India (RBI) to set up a Rs 6,000-crore National Asset Reconstruction Company Ltd (NARCL) or bad bank.

The process

With the registration of the company, the process for putting an initial capital of Rs 100 crore is on as per the guidelines, the sources said adding that the next step will be audit and then move an application to the RBI seeking a licence for the asset reconstruction company.

The RBI in 2017 raised the capital requirement to Rs 100 crore from the earlier level of Rs 2 crore keeping in mind the higher amount of cash required to buy bad loans.

Legal consultant AZB & Partners has been engaged for seeking various regulatory approvals and fulfilling other legal formalities.

The initial capital would come from eight banks who have committed, and the NARCL would expand the capital base to Rs 6,000 crore subsequently after the RBI’s nod.

Other equity partners would join after the RBI’s licence and even the board would be expanded.

SBI veteran to steer

IBA, entrusted with the task of setting up a bad bank, has put a preliminary board for NARCL in place. The company has hired P M Nair, a stressed assets expert from the State Bank of India (SBI), as the managing director. The other directors on the board are IBA Chief Executive Sunil Mehta, SBI Deputy Managing Director S S Nair and Canara Bank‘s Chief General Manager Ajit Krishnan Nair.

Finance Minister Nirmala Sitharaman in Budget 2021-22 announced that the high level of provisioning by public sector banks of their stressed assets calls for measures to clean up the bank books.

Several banks are moving to divest their stake from Asset Reconstruction Companies (ARCs) to free up capital in preparation to launch the bad bank.

Three public sector banks—Union Bank of India, Indian Bank, and Bank of India—said they jointly intend to sell up to 88.4 million shares, constituting up to 90.31 per cent of the total equity share capital of ASREC India Ltd, a Mumbai based ARC.



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IBA to soon move application to RBI for setting up Rs 6,000-cr bad bank, BFSI News, ET BFSI

Banking & Finance

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Having secured licence from the Registrar of Companies, the Indian Banks’ Association (IBA) will soon move an application to the Reserve Bank of India (RBI) to set up a Rs 6,000-crore National Asset Reconstruction Company Ltd (NARCL) or bad bank, according to sources.

With registration of the company, the process for putting an initial capital of Rs 100 crore is on as per the guidelines, the sources said adding that the next step will be audit and then move application to the RBI seeking licence for the asset reconstruction company.

The RBI in 2017 raised capital requirement to Rs 100 crore from the earlier level of Rs 2 crore keeping in mind higher amount of cash required to buy bad loans.

Legal consultant AZB & Partners has been engaged for seeking various regulatory approvals and fulfilling other legal formalities.

The initial capital would come from eight banks who have committed, and the NARCL would expand the capital base to Rs 6,000 crore subsequently after the RBI’s nod, the sources said.

Other equity partners would join after the RBI’s licence and even the board would be expanded, the sources added.

IBA, entrusted with the task of setting up a bad bank, has put a preliminary board for NARCL in place. The company has hired P M Nair, a stressed assets expert from State Bank of India (SBI), as the managing director. The other directors on the board are IBA Chief Executive Sunil Mehta, SBI Deputy Managing Director S S Nair and Canara Bank‘s Chief General Manager Ajit Krishnan Nair.

Finance Minister Nirmala Sitharaman in Budget 2021-22 announced that the high level of provisioning by public sector banks of their stressed assets calls for measures to clean up the bank books.

“Asset Reconstruction Company Limited and Asset Management Company would be set up to consolidate and take over the existing stressed debt,” she had said in the Budget Speech. It will manage and dispose the assets to alternative investment funds and other potential investors for eventual value realisation, she had said.

Last year, IBA made a proposal for the creation of a bad bank for swift resolution of non-performing assets. The government accepted the proposal and decided to go for an asset reconstruction company and asset management company model in this regard.

Meanwhile, state-owned Canara Bank has expressed its intent to be the lead sponsor of NARCL with a 12 per cent stake.

The proposed NARCL would be 51 per cent owned by PSBs and the remaining by private sector lenders.

NARCL will take over identified bad loans of lenders. The lead bank with an offer in hand of NARCL will go for a ‘Swiss Challenge‘, wherein other asset reconstruction players will be invited to better the offer made by a chosen bidder for finding higher valuation of a non-performing asset on sale.

The company has picked up those assets that are 100 per cent provided for by the lenders. Banks have identified around 22 bad loans worth Rs 89,000 crore to be transferred to NARCL in the initial phase.



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Bad bank incorporated in Mumbai, RBI licence likely soon, BFSI News, ET BFSI

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The bad bank, which was proposed in the Union Budget this year, is moving fast to start operations.

The bad bank was registered as National Asset Reconstruction Co Ltd on July 7 with the Registrar of Companies, Mumbai with a paid-up capital of Rs 74.6 crore.

Lenders now plan to approach the Reserve Bank of India for a licence to start operations of the national asset reconstruction company, or bad bank, which was incorporated recently.

Taking shape

State-owned Canara Bank will be the lead sponsor of National Asset Reconstruction Company Limited with a 12 per cent stake in the entity.

The bad bank will be headed by Padmakumar Madhavan Nair, a stressed assets expert from the State Bank of India (SBI), as the managing director. Indian Banks’ Association chief executive Sunil Mehta, SBI deputy managing director Salee Sukumaran Nair and Canara Bank’s representative Ajit Krishnan Nair are the other directors of the bad bank.

Nair has been picked up for the CEO post of the proposed bad bank NARCL as he has a long exposure of handling resolution of stressed assets, they said. He will be joining the company on deputation basis for the moment.

Banks have identified 22 bad loans totalling Rs 89,000 crore to be transferred to the NARCL in the initial phase.

The State Bank of India plans to transfer bad loans worth around Rs 20,000 crore to the bad bank.

The Budget announcement

Finance Minister Nirmala Sitharaman in the budget for 2021-22 had announced that an asset reconstruction company or a bad bank would be set up to consolidate and take over existing stressed assets of lenders and undertake their resolution. Bad bank refers to a financial institution that takes over bad assets of lenders and undertakes resolution.

The new entity is being created in collaboration with both public and private sector banks. Sitharaman in the Budget 2021-22 had mentioned that the high level of provisioning by public sector banks of their stressed assets called for measures to clean up the bank books. “An Asset Reconstruction Company Limited and Asset Management Company would be set up to consolidate and take over the existing stressed debt,” she had said in the Budget speech. It will then manage and dispose of the assets to alternate investment funds and other potential investors for eventual value realisation, she added. National Asset Reconstruction Company Ltd (NARCL) will pay up to 15 per cent of the agreed value for the loans in cash and the remaining 85 per cent would be government-guaranteed security receipts.

Government guarantees

The government guarantee would be invoked if there is a loss against the threshold value. Last year, Indian Banks’ Association had made a proposal for the creation of a bad bank for swift resolution of non-performing assets (NPAs). The government accepted the proposal and decided to go for the asset reconstruction company (ARC) and asset management company (AMC) model for this. The Reserve Bank of India has said that loans classified as fraud cannot be sold to NARCL. As per the annual report of the RBI, about 1.9 lakh crore of loans have been classified as fraud as of March 2020.



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Banks ready to transfer 37 NPAs worth ₹92,000 crore to NARCL

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Banks have so far zeroed-in on 37 stressed assets, with exposure aggregating to about ₹92,000 crore, that can be transferred to the National Asset Reconstruction Company Ltd (NARCL), which is being set up by lenders jointly.

The assets to be transferred to NARCL include those of Videocon Industries, Reliance Naval & Engineering, and Essar Power Gujarat and Coastal Energy, according to bankers. Banks had lent to these entities as part of a consortium.

“Suppose the ₹92,000-crore exposure is transferred to NARCL at 70 per cent haircut. So, it will buy the exposure at ₹27,600 crore. Of the ₹27,600 crore, lenders will get upfront cash of 15 per cent (₹4,140 crore) and the balance (₹23,460 crore) by way of Security Receipts (SRs), which are likely to have government guarantee (partial/full),” said an executive of a state-owned bank.

Upfront cash

The upfront cash that NARCL will give will result in provision write-back for the lenders, though it will be small.

“NARCL may buy all the loans put together at 30 per cent. But if the recovery is higher, say, 40 per cent, lenders will get the benefit via SRs,” the executive quoted above said.

He underscored that a few more Joint Lenders Forum meetings will be organised to arrive at a consensus on transferring more stressed assets.

The criteria prescribed by the Indian Banks’ Association (IBA) for the transfer of stressed assets to NARCL is that they should have been 100 per cent provided for, not be categorised as fraud, and should not be close to a resolution or recovery.

The IBA is spearheading the formation of NARCL in consultation with the Finance Ministry and the Reserve Bank of India. Stressed assets with principal outstanding of ₹500 crore and above, aggregating about ₹1.5-lakh crore, are expected to be transferred to NARCL.

Besides banks, state-owned non-banking finance companies in the power sector — Power Finance Corporation and Rural Electrification Corporation — are likely to contribute to the equity of NARCL and sell to it the stressed assets in their portfolio.

Will alter balance-sheets

NARCL may structurally alter the balance-sheets of lenders in such a way that it will further the government’s agenda of divesting its stake in IDBI Bank and privatising two public sector banks. Once chunky stressed assets are out of their books, the valuation of these banks will improve, making them more saleable, say market experts.

Finance Minister Nirmala Sitharaman, in her Budget speech on February 1, observed that the high level of provisioning by PSBs on their stressed assets calls for measures to clean up their books.

In this regard, she had said that an Asset Reconstruction Company and an Asset Management Company would be set up to consolidate and take over the stressed debt and then manage and dispose of the assets to Alternate Investment Funds (AIFs) and other investors for eventual value realisation.

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