India's much-anticipated 'bad bank' finally takes shape

The long-standing wait for India's "bad bank" has come to an end with the incorporation of the National Asset Reconstruction Company Ltd (NARCL).

The company has been registered with the Registrar of Companies (RoC), Mumbai with a paid up capital of Rs 74.6 crore, as per RoC filing.

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NARCL is headed by Padmakumar Madhavan Nair, a former SBI executive, as its MD and CEO. The other directors include SBI Deputy Managing Director Salee Sukumaran Nair, Canara Bank's Ajit Krishnan Nair and Indian Banks' Association (IBA) chief Sunil Mehta.

The asset reconstruction company is a major move by the government in its move to clean up the banking sector.

Amid concerns of rise in non-performing assets in banks due to the pandemic, the government decided to come up with a bad bank to take over the stressed assets of the lenders.

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

The ARC and AMC will then manage and dispose of the assets to Alternate Investment Funds and other potential investors for eventual value realisation.

Sitharaman had said that the high-level of provisioning by public sector banks of their stressed assets calls for measures to clean up the bank books.