The Department of Financial Services (DFS) in the Finance Ministry has decided to set up a Committee under the Chairmanship of SBI Chairman C S Setty to submit a fresh list of accounts for transfer to the National Asset Reconstruction Company Limited (NARCL), colloquially known as ‘Bad Bank’.

This emerged at a review meeting chaired by DFS Secretary M Nagaraju to address key operational challenges and enhance the efficiency of resolution mechanisms through NARCL and the National Company Law Tribunal (NCLT).

Till date, NARCL, which came into the scene in mid-2021, has acquired 22 accounts with an exposure of ₹95,711 crore. The Finance Ministry had a few months back said that it was targeting stressed assets transfer of ₹1 lakh crore to the National Asset Reconstruction Company Ltd (NARCL) by March 2025.

Bad Bank

Essentially, a Bad Bank serves as an entity that consolidates a bank’s bad loans or non-performing assets (NPAs) and works towards resolving or liquidating these stressed assets to recover maximum value. In India, NARCL acquires these loans by paying 15 per cent of the amount in cash and the remainder in government-guaranteed SRs, which banks can invoke during the resolution or liquidation of bad loans.

During the review meeting, the DFS Secretary advised banks to closely monitor cases in NCLT, minimise procedural delays and not to seek adjournments.

In December last year, Finance Minister Nirmala Sitharaman directed NARCL and banks to hold regular meetings to expedite the on-boarding of stressed accounts. This intervention aimed to bridge the gap between NARCL’s efforts and the banks’ reluctance, ensuring the Bad Bank doesn’t become a failed experiment.

Banks have been reluctant to transfer stressed assets to the bad bank in the wake of a price expectation mismatch between them and NARCL and seemingly low offers made by the latter.

In September 2021, a government guarantee facility of ₹30,600 crores was instituted for the security receipts (SRs) issued by NARCL. This measure was aimed to bolster confidence in the Bad Bank and facilitate its acquisition of distressed assets from lenders.