National Asset Reconstruction Company Limited (NARCL) – India’s Bad Bank

SBICAP has been entrusted with the responsibility of setting up the NARCL, or India’s first, one-of-its kind bank for managing NPAs, in the wake of the financial challenges created by COVID-19

The COVID-19 pandemic and related restrictions on economic activity have had a deep and significant impact on many sectors. In the wake of the financial turmoil it brought in, the Government of India and leading experts from the financial services industry saw the need for an institutionalized approach, involving an ARC Aggregator of debt and AMC – Resolution Manager to tackle legacy NPAs and manage the envisaged large scale increase in NPA on account of the pandemic.

The National Asset Reconstruction Company Limited (NARCL), a unique strategic initiative backed by the Government of India, was proposed as a solution. The NARCL will work on ARC-AMC structure to resolve legacy NPAs through aggregation of debt in ARC coupled with a resolution strategy driven by the AMC which will hire sector experts to drive resolutions. The structure provides a very promising proposition for the entire Indian banking system, which would benefit in two ways – first, by selling their stressed assets and second, by investing in NARCL and potentially earning returns through better recoveries from aggregation and turnaround of assets.

Bankers and financial services leaders have welcomed the concept and have committed to invest in it. The concept is also expected to benefit the lending fraternity through:

• Upfront cash recovery of 15% and balance with 5 year GOI backed SRs.
• Strong upside potential due to aggregation with a resolution by experts.
• Reduction in gross NPA in the books to improve equity valuations of selling lenders.
• Opening of capital raising avenues for selling lenders.
• Reallocation of management bandwidth towards credit delivery and growth.

SBICAP has been involved in setting up the NARCL from the very stage of conceptualisation, and is working as a project manager to provide the complete solution for setting up India’s first Bad Bank. Apart from conceiving the solution, our team of experts is playing a key role in structuring the bank, helping identify assets and assist in raising debt/equity, etc.