India Debt Resolution Company (IDRCL), a private that helps resolve bad loans and debts has announced it will assist public sector banks in resolving non-performing assets (NPAs).
The recent development is due to private sector lenders including HDFC bank, ICICI Bank and Axis Bank that plan on holding a major part of IDRCL’s capital, are classified under foreign entities as per the Indian law and hence require government approval permission from the government.
The bad bank proposal which had been announced in February 2021 budget had envisaged the public sector National Asset Reconstruction Company (NARCL) to obtain bad loans from banks. Once these loans were pooled from multiple lenders, they would be sorted out with private sector expertise from IDRCL.
In January 2021, SBI Chairman Dinesh Khara had said in a public statement that NARCL has received all necessary approvals to start operations whereas loans worth Rs 50,000 crore would be transferred to NARCL by March 2022. However, this second phase of resolution requires IDRCL to be in place.
White the Reserve Bank of India has given private banks the nod to invest in IDRCL, they remain to seek government approval for foreign investment norms. All three private banks are mainly owned by foreign investors
Meanwhile, PSU banks in the country have ensured that IDRCL is incorporated by making an initial investment. Earlier in March, the IDBI Bank, now a private bank, had said it would invest Rs 272 crore through equity and debt in IDRCL, with its stake rising to 9% by the end of March.
In the last week, UCO Bank also announced it was acquiring 3% stake in IDRCL for Rs 1.5 crore, indicating that it would complete the transaction this month. In February, Bank of Baroda had subscribed 99,000 shares amounting to 12.3% stake in the company, which will be reduced to 9.9% by the end of March 2022.
For banks, it is becoming increasingly difficult to transfer the loan to the bad bank. Since most loans are provided for, any recovery will make its headway towards profits. The fact that security receipts are guaranteed by the government would fuel the release of capital for banks. In the past quarters, there has been record major recoveries almost every quarter, thus adding to the bottom line of the lenders. No major recovery has, however been seen in the fourth quarter.
Banks are expected to recover Rs 3,600 crore on their loans given to Syntex Industries after Reliance Industries was declared the highest bidder.