Putting up a thread on National Asset Reconstruction Company (#NARCL) aka #badbank . Why government is setting this up? How effective this could be to tackle the issue of much rising #NPAs. Tried to simplify as much as I could. Please do retweet for wider outreach.
1/n
Story starts with NPA-Non-Performing Assets. A bad loan is a NPA for which EMI or interest hasn't been paid for 90 or more days after the due date.PSU banks usually give loans without even doing the background check-without checking credit history.
Story starts with NPA-Non-Performing Assets. A bad loan is a NPA for which EMI or interest hasn't been paid for 90 or more days after the due date.PSU banks usually give loans without even doing the background check-without checking credit history.
2/n
Pvt. banks on the other hand are bit conservative about lending money. So, their NPAs are less compared to PSU banks. PSU banks have liberal credit policies and loose terms and conditions of loans. So, NPAs become higher.
Pvt. banks on the other hand are bit conservative about lending money. So, their NPAs are less compared to PSU banks. PSU banks have liberal credit policies and loose terms and conditions of loans. So, NPAs become higher.
3/n
In 2010-20 Indian banks have written off NPAs of worth 8 lakh crore. Currently India have bad debt of 9 lakh crores. Government says that putting up all these bad loans under one roof would expedite decisions and would make asset monetization easily.
In 2010-20 Indian banks have written off NPAs of worth 8 lakh crore. Currently India have bad debt of 9 lakh crores. Government says that putting up all these bad loans under one roof would expedite decisions and would make asset monetization easily.
4/n
Now the biggest question is why #NARCL. Banks aren't that efficient with recovery of these NPAs and there were issues ; For eg, a company who has defaulted has taken loans from various banks- Private as well as Public. (SBI, PNB,ICICI bank, HDFC bank etc.)
Now the biggest question is why #NARCL. Banks aren't that efficient with recovery of these NPAs and there were issues ; For eg, a company who has defaulted has taken loans from various banks- Private as well as Public. (SBI, PNB,ICICI bank, HDFC bank etc.)
5/n
Now in order to sell the remained assets (land/machinery etc. ) of that defaulted company all banks hv to come together and propose an aggregate value(it wd draw more value) contrary to the fact if all banks partially sell these assets. It wd not draw fair value in this case.
Now in order to sell the remained assets (land/machinery etc. ) of that defaulted company all banks hv to come together and propose an aggregate value(it wd draw more value) contrary to the fact if all banks partially sell these assets. It wd not draw fair value in this case.
6/n
There are bureaucratic and compliance rules as well which makes it bit difficult to draw fair value out of these partial holding of assets by each bank.
There are bureaucratic and compliance rules as well which makes it bit difficult to draw fair value out of these partial holding of assets by each bank.
7/n
This is reason why govt came up with the idea of #NARCL aka Bad Bank. This bank wd buy all those NPAs from these banks both public and private and pay them 15% upfront cash and will issue 85% as security receipts (guaranteed by the government).
This is reason why govt came up with the idea of #NARCL aka Bad Bank. This bank wd buy all those NPAs from these banks both public and private and pay them 15% upfront cash and will issue 85% as security receipts (guaranteed by the government).
8/n
Government of India guarantees up to Rs 30600 crore will support the Security Receipts (SR) issued by NARCL. The guarantee will be valid for 5 years. This guarantee will cover the shortfall between the face value of the SR and the actual realization.
Government of India guarantees up to Rs 30600 crore will support the Security Receipts (SR) issued by NARCL. The guarantee will be valid for 5 years. This guarantee will cover the shortfall between the face value of the SR and the actual realization.
9/n
Shortfall- Meaning if asset value reduces over time government will pay the amount difference. The Government of India guarantee will also enhance the liquidity of the SRs as such SRs would be tradable like shares are tradable in stock markets.
Shortfall- Meaning if asset value reduces over time government will pay the amount difference. The Government of India guarantee will also enhance the liquidity of the SRs as such SRs would be tradable like shares are tradable in stock markets.
10/n
Two entities have been formed by the government - NARCL and IDRCL. NARCL will acquire bad loans worth 90000 crores in phase one from banks and will use government approved 30600 crores as guarantee in the form of SRs(Security Receipts).
Two entities have been formed by the government - NARCL and IDRCL. NARCL will acquire bad loans worth 90000 crores in phase one from banks and will use government approved 30600 crores as guarantee in the form of SRs(Security Receipts).
11/n
The other entity IDRCL(Indian Debt Reconstruction Limited) will be managed by professionals who will manage these assets and will try to recoup these loans.
The other entity IDRCL(Indian Debt Reconstruction Limited) will be managed by professionals who will manage these assets and will try to recoup these loans.
12/n
Though NARCL is being created in collaboration with both public&private sector banks bt it'll hv a public sector character since the idea is floated by the govt and it is providing guarantee. The majority ownership is likely to rest with state-owned banks(51% ownership).
Though NARCL is being created in collaboration with both public&private sector banks bt it'll hv a public sector character since the idea is floated by the govt and it is providing guarantee. The majority ownership is likely to rest with state-owned banks(51% ownership).
13/n
It remains to be seen how efficient this structure would be. Few countries in the world already entities similar to this (US, Malaysia, Ireland etc). US RTC(its Asset Reconstruction Company) have 87% recovery rate.
Image Credit : @kotaksecurities
It remains to be seen how efficient this structure would be. Few countries in the world already entities similar to this (US, Malaysia, Ireland etc). US RTC(its Asset Reconstruction Company) have 87% recovery rate.
Image Credit : @kotaksecurities
EOT.
• • •
Missing some Tweet in this thread? You can try to
force a refresh
