“Foreign” pvt banks need government to support debt recasting enterprise

MUMBAI: The private sector India Debt Resolution Co (IDRCL), which will help the public sector bad bank resolve non-performing assets (NPAs), will take longer to start as some shareholders are not yet on board. Indeed, private sector lenders HDFC Bank, ICICI Bank and Axis Bank, which plan to hold a large share of IDRCL’s capital, are classified as foreign entities under the law and must obtain government permission to the investment.
The bad bank proposal, announced in the February 2021 budget, provided for a public-sector National Asset Reconstruction Co (NARCL) that will acquire banks’ bad debts. Once these loans were consolidated with multiple lenders, they would be resolved with the private sector expertise of IDRCL.
In January 2021, SBI Chairman Dinesh Khara had announced that NARCL had received all approvals to start operations and that loans worth Rs 50,000 crore would be transferred to NARCL by March 2022 However, the second stage of the resolution would require the IDRCL to be in place.
Although the RBI has allowed private banks to invest in the IDRCL, foreign investment standards also require them to obtain government approval. The three private banks are majority owned by foreign investors.
Meanwhile, the PSU banks ensured that IDRCL was incorporated by making the initial investment. Earlier this month, IDBI Bank, which is now a private bank, announced that it would invest Rs 272 crore in the form of equity and debt in IDRCL. He said that by the end of March his stake would be 9%.
Last week, UCO Bank said it was acquiring a 3% stake in IDRCL for Rs 1.5 crore. The bank had indicated that it would finalize the transaction this month. In February, Bank of Baroda announced that it had subscribed for 99,000 shares representing a 12.3% stake in the company, which would drop to 9.9% by the end of March 2022.
For the banks, it’s a race against time to transfer loans to the bad bank. Since most loans are provisioned, any recovery will go towards profits. Having security receipts backed by the government would help free up capital for banks. During the first quarters, there were large recoveries almost every quarter, which added to the bottom line of the lenders. The fourth quarter did not see a major recovery.
The banks are hoping to recoup Rs 3,600 crore on their loans to Sintex Industries after Reliance Industries was declared the highest bidder.

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