Reserve Bank of India grants license to NARCL under Sarfaesi Act

The Reserve Bank of India (RBI) on Monday granted license to the National Asset Reconstruction Company Limited (NARCL) under Section 3 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (Sarfaesi) Act, 2002.

With the RBI granting the license now the company can formally start the work of buying bad assets from the banks. Bankers had earlier said, after getting the licence, NARCL would begin recruitment of experts at market-linked packages.

At present, the NARCL has a small team of people on deputation from public sector banks.

NARCL has been set up by banks to aggregate and consolidate stressed assets for their subsequent resolution, with public sector banks maintaining 51 per cent ownership.

Last month, the union government approved a government guarantee of Rs 30,600 crore to be provided for the security receipts issued by the NARCL to buy bad loans of lenders.

The NARCL will acquire stressed assets of about Rs 2 trillion in phases, and these soured loans would be transferred by paying 15 per cent cash to lenders and the remaining 85 per cent would be paid through security receipts.

Initially, the banks will transfer nearly Rs 0.9 trillion of fully-provided non-performing assets (NPAs) in the first tranche and the balance Rs 1.1 trillion in the second tranche, taking the total NPA transfer amount to Rs 2 trillion, or 1.9 per cent of systemic loans.

According to Emkay Research, since most of these NPAs are fully provided, cash recovery will boost the profitability of the public sector banks.

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