NARCL, India’s Bad Bank, Facing Problems In Loan Transfers Due To Pricing, Liability Conflicts: Report

The institution was estimated to buy about Rs 2 trillion in bad loans since it’s start, so far it has bought Rs 213.5 billion worth of bad loans as of July 17.

The National Asset Reconstruction Co Ltd (NARCL) is finding it difficult to acquire ‘bad loans’ from lenders due to conflicts about pricing and future liabilities. NARCL, often referred to as the ‘bad bank’ of India, is facing many problems in buying non-performing assets from lenders, banking and industry sources revealed to Reuters. 

According to the report by Reuters, the transfer of assets worth more than Rs 500 billion to the NARCL has stalled at the moment. 

The NARCL was formed in July 2021 with the objective to acquire NPAs from banking institutions and sell them to prospective buyers. The pricing point for these assets is decided by the NARCL itself. The institution was estimated to buy about Rs 2 trillion in bad loans since it’s start, so far it has bought Rs 213.5 billion worth of bad loans as of July 17, based on the government’s statement to parliament, the report noted. 

The report quoted an anonymous banker and stated, “So far in this fiscal year, no account has been transferred to NARCL.” Another banked commented on the problems being faced by the NARCL and said, “There are issues related to pricing, valuation of accounts, which, along with the delay in obtaining security receipts from the government, is prolonging the entire transfer process.”

The banker noted that about 12-13 accounts are “stuck, with no resolution in sight” and 4 stressed accounts have been transferred to the NARCL, including 3 from IDBI Bank. 

The report states that differences in wording in the loan purchase agreements, specifically for fraud accounts, are another obstacle for the NARCL. The report quoted another source from the banking industry and stated, “NARCL does not want legal liabilities or government investigations after the sale of fraud accounts and wants banks to sign a clause pertaining to that. Banks are reluctant to sign such a clause, resulting in more delays.”

Additionally, banks have lost faith in the NARCL citing no recoveries of loans. The Bank of India stated last month that it has not made any recovery from the NARCL accounts.  The report added that not all in the banking industry have written off the bad bank yet. “NARCL being in the market has pushed private asset reconstruction companies to offer a better price,” the report stated citing another source.