IDRCL: stakes of canara bank, SBI, PNB, union bank reduced to 5%
What is the news:
- Four public sector lenders — State Bank of India, Canara Bank, Punjab National Bank and Union Bank of India said their stakes in India Debt Resolution Company Ltd (IDRCL) have come down to 5 per cent each.
- The bad bank or the National Asset Reconstruction Company Ltd (NARCL) will acquire bad loans from banks to help clean up their books, while the IDRCL will handle the debt resolution process of these loans.
- With the current round of preferential allotment by IDRCL, equity stake of Canara Bank has now reduced to 5 per cent from previous holding of 14.90 per cent, the bank said in a regulatory filing.
- The reduction of stake is on account of issuance of fresh shares on preferential basis to the existing shareholders.
- PNB’s stake came down from 11.8 per cent while Union Bank’s holding reduced from 12.30 per cent in the debt resolution company.
- Public sector bankswill hold 51 per cent stake in NARCL and 49 per cent in the debt management company IDRCL.
- Indian Banks’ Association (IBA) was entrusted with the task of setting up the bad bank. Last month, the IBA moved an application before the Reserve Bank of India for a licence to set up the Rs 6,000-crore NARCL.
What is National Asset Reconstruction Company Limited (NARCL)? Who has set it up?
- NARCL has been incorporated under the Companies Act and has applied to Reserve Bank of India for license as an Asset Reconstruction Company (ARC). NARCL has been set up by banks to aggregate and consolidate stressed assets for their subsequent resolution.
- PSBs will maintain51% ownership in NARCL.
What is India Debt Resolution Company Ltd. (IDRCL)? Who has set it up?
- IDRCL is a service company/operational entity which will manage the asset and engage market professionals and turnaround experts. Public Sector Banks (PSBs) and Public FIs will hold a maximum of 49% stake and the rest will be with private sector lenders.
Why is NARCL-IDRCL type structure needed when there are 28 existing ARCs?
- Existing ARCs have been helpful in resolution of stressed assets especially for smaller value loans. Various available resolution mechanisms, including IBC have proved to be useful. However,considering the large stock of legacy NPAs, additional options/alternatives are needed and the NARCL-IRDCL structure announced in the Union Budget is this initiative.
Why is a Government Guarantee needed?
- Resolution mechanisms of this nature which deal with a backlog of NPAs typically require a backstop from Government. This imparts credibility and provides for contingency buffers. Hence, GoI Guarantee of up to Rs 30,600 crore will back Security Receipts (SRs) issued by NARCL. The guarantee will be valid for 5 years. The condition precedent for invocation of guarantee would be resolution or liquidation. The guarantee shall cover the shortfall between the face value of the SR and the actual realisation. GoI’s guarantee will also enhance liquidity of SRs as such SRs are tradable.
How NARCL and IDRCL works?
- The NARCL acquires assets by making an offer to the lead bank. Once NARCL’s offer is accepted, then, IDRCL will be engaged for management and value addition.
Indian banks association :
Indian Banks’ Association (IBA), formed on (26 September 1946) as a representative body of management of banking in India operating in India – an association of Indian banks and financial institutions based in Mumbai.
Chairman –
- Shri A K Goel (Punjab National Bank)
Deputy chairman –
- Shri L V Prabhakar (Canara Bank)
- Shri Rakesh Sharma (IDBI Bank)
- Shri Dinesh Kumar Khara (SBI)
About State Bank Of India:
- SBI chairman – Dinesh kumar khara
- SBI headquarter – Mumbai
- SBI founded on 1st july 1955
About Canara Bank –
- MD and CEO – Lingam Venkat Prabhakar
- Headquarter – Bangalore , Karnataka.
- Founded on – 1st july 1906
About Union bank of india :
- MD – Rajkiran Rai G.
- Headquarter – Mumbai
- Founded on – 11 November 1919
Recent news about NARCL :
NARCL chairman Pradip Shah quit before RBI nod: State Bank of India
- Pradip Shah, who had taken charge as the chairman of National Asset Reconstruction Co Ltd (NARCL), stepped down before the Reserve Bank of India (RBI) could approve the proposal, State Bank of India (SBI) said.
- Shah, a financial sector veteran, took charge of the NARCL soon after the debt recast firm received the licence from the RBI.According to sources familiar to the development, NARCL sought the RBI’s approval for appointing four directors. The application also indicated Shah’s role as the chairman of the board.
- “Directors’ appointment is one among the many approvals that an ARC requires prior to commencing business,” SBI said in a statement.
- NARCL has been set up by banks to aggregate and consolidate stressed assets for their subsequent resolution. SBI, along with other public sector banks will have 51 per cent stake in NARCL, the government had said.
- “While these requests were under process, Mr Pradip Shah stepped down from the NARCL Board. The RBI approval, therefore, was received only for the remaining directors. The factual position is that Mr Pradip Shah happened to step down prior to receipt of the RBI approval,” the statement said.
- Sources said the RBI approval for the four candidates were sought on January 21, 2022. Shah stepped down from the post on January 28.
- “RBI wanted some more time, some more background check was required,” said a source, requesting anonymity.
- “The standard process for onboarding of directors for an ARC is to seek prior approval of the RBI. In view of the urgency to operationalise NARCL quickly, soon after receipt of RBI licence, a few directors, including Mr Pradip Shah, were onboarded and an application was submitted to RBI for approval,” the SBI said.
- After Shah stepped down, Subrata Biswas, a deputy managing director of SBI and one of the nominee directors of NARCL, was appointed as interim chairman.
- Sources said that NARCL will seek fresh approval from RBI for appointing the chairman. One director’s post in the NARCL board is still vacant.