NARCL sponsor Canara to put up to 12% equity

Canara Bank will be the lead sponsor — and biggest shareholder — of the National Asset Reconstruction Company Ltd (NARCL), contributing up to 12% equity to it as the state-led bad loan aggregator’s capital structure is amended to comply with the Reserve Bank of India (RBI) rules.NARCL, being formed within the scope of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Sarfaesi) Act, is likely to be dominated by public sector banks.All equity investors besides Canara will hold less than 10% to ensure diversified ownership. In the initial plan, 11 shareholders were expected to hold just above 9% each in the new entity, which should start operations later this month.“Canara was selected as the sponsor because this entity is being formed under the Sarfaesi Act, which needs at least one sponsor,” said a top industry executive aware of the move. “RBI norms mandate that a bank cannot be a sponsor in more than one ARC, and Canara fits the bill perfectly.”Canara Bank executive director Debashish Mukherjee told ET later that the public sector lender will be sole sponsor in NARCL.State Bank of India (SBI), Punjab National Bank, Bank of Baroda and Union Bank of India have confirmed equity purchases in NARCL. 83499449Other ParticipantsLarge private sector banks — ICICI Bank, HDFC Bank and Axis Bank — have also been approached to hold less than 10% each in the entity and are still discussing these proposals internally.Two government-owned non-banking finance companies (NBFCs) with exposure to bad loans in the power and infrastructure sectors — Rural Electrification Corp and Power Finance Corp — are also yet to decide on their proposed investments, the executive cited above said.“Most bank boards will individually approve their respective capital investments. NARCL is likely to be registered with the registrar this week, following which central bank approvals will be taken,” said the executive. “Even if some private sector banks or NBFCs decline to buy equity stakes, we have alternatives ready, as all public sector banks are on board.”Bad Loans AggregatorTogether, these banks will invest just under ₹6,000 crore as initial capital in NARCL, which aims to help aggregate legacy bad loans and quicken their recovery. Banks have already identified bad loans to be sold to this new entity.Union Bank, for instance, has identified 17 accounts worth Rs 7,800 crore. It is the lead bank in two such accounts, its chief executive Rajkiran Rai told reporters last week. ‘Although there are modalities to be worked out, it is estimated that the banking system will put up Rs 89,000 crore of loans for sale to NARCL in the first round,” Rai said last week.Rai chairs a five-member core group, appointed by the Indian Banks’ Association, to work out the modalities of this new firm.The mandate is to select large bad loans of a minimum of ₹500 crore, with the likelihood of consolidation of at least 75% of the debt for easy resolution. These assets are either fully provided for or close to being fully provided, which means banks can write back whatever cash they receive from NARCL through the initial sale.These assets will be transferred to the new ARC at 15% immediate cash payments, with security receipts issued for the remaining amount. These will be redeemed as and when NARCL is able to recover these loans.Bankers have been working on a national bad loan aggregator for more than a year and the proposal got the green light in the budget on February 1.

from Economic Times https://bit.ly/2U4ENL9
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