The government backed National Asset Reconstruction Co Ltd (NARCL) has offered to acquire another Rs 1.25 lakh crore of non-performing assets (NPAs) from banks with offers at various stages of due diligence and evaluations, the finance ministry said in the pre-budget economic survey for 2023-24.
This is in addition to the 18 accounts with total banking loan exposure of around Rs 92,000 crore acquired by NARCL so far, including the takeover of distressed NBFCs Srei Infrastructure Finance Ltd and Srei Equipment Finance Ltd as a resolution applicant.
“While offers on assets worth Rs 1.25 lakh crore are at different stages of acquisition, due diligence, and evaluations for assets of around Rs 40,000 crore are underway. The establishment of a government-backed company for the aggregation and resolution of distressed assets will further improve liquidity and competition in the market,” the economic survey said.
NARCL started operation in January 2022 and acquires bad loans from banks, by paying 15% of the amount in cash and the rest in security receipts (SRs) which are to be matched with recovery over time. These SRs are guaranteed by the government, valid for five years, to be invoked by banks in case of resolution or liquidation of the bad loan. It covers the shortfall between the face value of security receipts issued and actual realisation from the account when NARCL finds a buyer, which is the main USP for the government backed bad bank.
Gross non-performing assets (GNPA) ratio of banks have reached a 12-year low of 2.8% at the end of March 2024 from its peak of 11.2% in fiscal ended March 2018 because of lower slippages and a reduction in outstanding GNPAs through recoveries, upgradations and write offs, the survey said.
NPA of the agriculture sector remains high at 6.5% at the end of March 2024, but lower than the first half of the fiscal. “Apart from direct measures taken to reduce the GNPAs, the government is building systemic strength in the market with market based interventions to improve liquidity and competition by establishing a bad bank and encouraging the insolvency and bankruptcy ecosystem,” the survey said.
