The National Asset Reconstruction Company Limited (NARCL), supported by the Indian government, aims to acquire INR 2 lakh crore worth of stressed or non-performing assets (NPAs) from banks by FY 2026. As of July 2024, NARCL has taken over 18 accounts totaling INR 62,000 crore and approved resolution plans for two accounts valued at nearly INR 33,000 crore. NARCL utilizes the Swiss Challenge method for asset management and sale, allowing competition among bidders and the original bidder the right to match the best offer. Although the concept of a 'bad bank' was introduced in the 2021-22 Union Budget, its implementation faced delays. Nonetheless, NARCL's progress, including the successful application of this method to accounts worth INR 5,910 crore, is expected to help banks reduce NPAs, improve their balance sheets, and strengthen the financial system.
The National Asset Reconstruction Company Limited (NARCL), backed by the Indian government, has set an ambitious target to acquire INR 2 lakh crore worth of stressed or non-performing assets (NPAs) from banks by the financial year 2026. This initiative aims to support banks in cleaning up their balance sheets and managing bad loans effectively.
By July 2024, NARCL had already taken over 18 accounts with outstanding loans amounting to INR 62,000 crore. Additionally, resolution plans have been approved for two accounts worth almost INR 33,000 crore, according to Vivek Joshi, Secretary of the Finance Ministry's Department of Financial Services.
NARCL's mission is to manage and sell these bad loans, ultimately recovering the funds to liquidate the troubled assets. The process used for this involves the Swiss Challenge method, which allows private players and state-backed companies to compete in the bidding process to manage and resolve these assets. The original bidder has the right of first refusal to match the best counterproposal.
This method has been successfully employed by several Indian states, including Karnataka, Andhra Pradesh, Rajasthan, Madhya Pradesh, Bihar, Punjab, and Gujarat, primarily for road and housing projects.
The concept of forming a 'bad bank' to clean up banks' balance sheets was initially announced in the Union Budget of 2021-22. This proposal aimed to tackle large loans exceeding INR 500 crore. However, the formation of such a bank faced delays as the Reserve Bank of India (RBI) expressed concerns about the proposed structure. Consequently, lenders were required to present a revised proposal to the regulator.
Despite the challenges, NARCL has made significant progress in acquiring and managing stressed assets. The Swiss Challenge method has already been successfully applied to an account worth INR 5,910 crore, with the process initiated for six additional accounts totalling INR 30,000 crore. Due diligence is also underway for 13 more accounts worth about INR 36,000 crore.
NARCL's efforts are expected to play a crucial role in stabilising the banking sector by alleviating the burden of NPAs, thus contributing to the overall health of the economy. By reducing the volume of bad loans, banks will be in a stronger position to extend new credit, foster growth, and support economic development. Furthermore, by improving their balance sheets, banks can restore confidence among investors and stakeholders, paving the way for a more robust financial system. This initiative not only addresses the immediate issue of NPAs but also sets the foundation for a healthier, more resilient banking sector in the long term.
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