Lenders want power finance cos as NARC promoters

Mumbai: The mantle of the promoter of the public sector National Asset Reconstruction Company (NARC) is likely to be state-owned power financiers. Power Finance Corporation (PFC) and Rural Electrification Corporation (REC) will be approached by banks to become the promoters of NARC for regulatory purposes.
According to bankers, the RBI is reluctant to allow banks to float another ARC to which they will sell their bad loans.Most of the large public sector banks in India have a stake in an existing ARC. For instance, SBI is the largest shareholder in Arcil with IDBI Bank, ICICI Bank and Punjab National Bank holding a significant stake. Another firm Asrec is owned by Indian Bank, Bank of India, Union Bank and LIC.
While all major public sector banks will invest in the NARC, they will be holding a stake of below 10%. “REC and PFC are in the public sector. Also, a significant portion of NPAs are in the power sector, which makes sense for them to be promoters,” said a banker. The power finance companies are expected to hold over 10%.
Last week, lenders decided upon Padmakumar Nair — SBI chief GM (stressed assets) — to head the proposed NARC, which is expected to take over bad loans larger than Rs 500 crore total exposure with banks. Banks are expected to transfer bad loans in the range of Rs 1.5 lakh to Rs 2 lakh crore to the NARC after a ‘Swiss auction’ that will allow other private asset reconstruction companies to bid for the loans. However, the NARC is expected to have an upper hand as it will receive a government guarantee.The management of Yes Bank has been pursuing a licence to set up an ARC soon after the new management took charge following the reconstruction of the bank in March 2020. The RBI has not yet granted the private bank the licence.
The central bank recently published a study on asset reconstruction companies, where it pointed out that those in the public sector have performed better internationally. These include Securum of Sweden, which was set up in 1992 and wound up in 1997, and which succeeded in recovering close to 86% of the amount involved. Similarly, Danaharta of Malaysia, set up following the Asian financial crisis and operational between 1998 and 2005, managed to recover about 58% of the involved amount. Among the AMC experiments reviewed by the World Bank, the performance of the Non-Performing Assets Trust of Ghana, which existed from 1989 to 1997, was regarded as satisfactory.