India's first bad bank or NARCL is here to tackle NPA, free up lenders: Details here

New Delhi, July 14: Public sector lenders led by Canara Bank have officially formed the National Asset Reconstruction Company Limited (NARCL), or the name coined for the bad bank is finally taking the shape!

The company has been registered in Mumbai with a paid-up capital of Rs 74.6 crore, as per filings with the Registrar of Companies (RoC), according to IANS.

Who heads it?

The bad bank will be headed by Former SBI executive Padmakumar Madhavan Nair, a stressed assets expert as its managing director (MD) and CEO, as per an IANS report.

Other directors
Indian Banks' Association (IBA) Chief Sunil Mehta, Canara Bank's Ajit Krishnan Nair, and SBI Deputy Managing Director Salee Sukumaran Nair are other Directors in NARCL, the IANS report says.

What is a Bad Bank?

A bad bank is a bank set up to buy bad loans and other illiquid holdings of another financial institution. An entity holding significant non-performing assets will sell these holdings at market value to a bad bank. By transferring such assets to the bad bank, the parent institution can clean up its balance sheet-though it will still be forced to write off it.

Why bad bank?

The setting up of the bad bank is part of the government's efforts to clean up India's financial system, which is sitting on one of the biggest piles of bad assets in the world. Transferring soured loans to NARCL will allow banks to cut their losses and renew lending.

22 bad loan accounts worth Rs 89,000 crore to transfer to bad bank

Initially, state-run banks will transfer 22 bad loan accounts worth ₹89,000 crore to the NARCL. Total bad loans worth ₹2 trillion are likely to be transferred in tranches.

When Nirmala Sitharaman said bad bank will be set up

Presenting the Union Budget for 2021-22, Finance Minister Nirmala Sitharaman had said that an Asset Reconstruction Company (ARC) Ltd and an Asset Management Company (AMC) will be set up to consolidate and take over the existing stressed debt.