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FM Sitharaman to address media today, bad bank announcement likely

By Priyanka Verma 
Updated Date

Finance Minister Nirmala Sitharaman will be addressing the media on Thursday at 5 pm in New Delhi and is expected to reveal the announcements related to the bad bank proposal. The Union Cabinet on Wednesday has likely cleared a proposal to provide government guarantee to security receipts issued by the National Asset Reconstruction Company (NARCL) as part of resolution of bad loans, sources told news agency.

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While presenting the union budget for FY22, finance minister Nirmala Sitharaman had announced the proposal to set up a bad bank comprising an asset reconstruction company (ARC) and an asset management company (AMC) to consolidate and take over the stressed debt of banks. The government will provide guarantees to support the bad bank. Initially, the guarantee amount was pegged at a maximum Rs 31,000 crore. It could be set lower as banks have projected an upside in recovery and full government guarantees may not be invoked.

According to a recent study conducted jointly by Assocham and Crisil, banks’ gross non-performing assets (GNPAs) are likely to exceed Rs 10 lakh crore by March 2022.

“NPAs are expected to rise to 8.5-9% by March 2022, driven by slippages in retail, micro, small and medium enterprise (MSME) accounts, as well as some restructured assets,” the report noted.

The Indian Banks’ Association (IBA) has already filed an application with the Reserve Bank of India to set up the bad bank that will be called National Asset Reconstruction Co. Ltd (NARCL). State-run Canara Bank will be the lead sponsor of NARCL with a 12% stake. Public sector banks will together hold 51% of NARCL, incorporated in Mumbai with the Registrar of Companies (RoC).

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In the first phase, banks have identified 22 bad loan accounts aggregating about Rs 89,000 crore that will be transferred to NARCL. The proposed band bank will only take up stressed assets worth Rs 500 crore or more for resolution. There are about Rs 3 lakh crore worth of bad loans that meet this condition.

Under the proposed model, NARCL will acquire assets. The India Debt Management Co Ltd (IDMCL), an asset management company set up under the dual structure, will manage them and raise institutional funding through alternate investment funds (AIFs).

Padmakumar Nair of SBI has been selected as the head of the NARCL. IBA chief executive Sunil Mehta will be its non-executive chairman.

Last year, the Indian Banks’ Association (IBA) made a proposal for the creation of a bad bank for swift resolution of non-performing assets. The government accepted the proposal and decided to go for asset reconstruction company and asset management company model in this regard.

FM Sitharaman will chair the 45th GST Council meeting tomorrow in Lucknow which will be attended by Finance Ministers of States & UTs and Senior officers from Union Government & States. Another report by PTI suggested that GST Council is likely to discuss on Friday a proposal to treat food delivery apps such as Zomato and Swiggy as restaurants and levy 5 per cent GST on supplies made by them. If approved, the apps would be given certain time to make changes in their software to allow for such tax to be charged.

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