‘Foreign’ private banks need govt nod to back debt recast firm

(This story originally appeared in on Mar 14, 2022)

MUMBAI: The private sector India Debt Resolution Co (IDRCL), which will help the public sector bad bank resolve non-performing assets (NPAs), will take some more time to get going as some shareholders are yet to get on board. This is because private-sector lenders HDFC Bank, ICICI Bank and Axis Bank, which plan to hold a big chunk of IDRCL’s capital, are classified as foreign entities under the law and need to get permission from the government for the investment.

The bad bank proposal, announced in the February 2021 Budget, envisaged a public sector National Asset Reconstruction Co (NARCL) that will acquire bad loans from banks. Once these loans were aggregated from multiple lenders, they would be resolved with private sector expertise from the IDRCL.

In January 2021, SBI chairman Dinesh Khara had announced that the NARCL had received all approvals to start operations and that loans worth Rs 50,000 crore would be transferred to the NARCL by March 2022. However, the second leg of the resolution would require the IDRCL to be in place.

While the RBI has granted permission to the private banks to invest in IDRCL, foreign investment norms require them to get a government nod as well. All three private banks are predominantly owned by foreign investors.

Meanwhile, PSU banks have ensured that IDRCL is incorporated by making the initial investment. Earlier this month IDBI Bank, which is now a private bank, said it will invest Rs 272 crore by way of equity and debt in IDRCL. It said that by end of March, its stake would be 9%.

Last week, UCO Bank said that it was acquiring a 3% stake in IDRCL for Rs 1.5 crore. The bank had indicated that it will complete the transaction this month. In February, Bank of Baroda said that it has subscribed to 99,000 shares amounting to a 12.3% stake in the company, which would come down to 9.9% by end of March 2022.

For banks, it is a race against time for the transfer of loans to the bad bank. Since most of the loans are provided for, any recovery would go towards profits. The fact that the security receipts are guaranteed by the government would help release capital for the banks. In the earlier quarters, there have been large recoveries almost every quarter, which has added to the bottom line of lenders. The fourth quarter has not seen any major recovery.

Banks are hopeful of recovering Rs 3,600 crore on their loans to Sintex Industries following Reliance Industries being declared the highest bidder.

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