There is no direct capital infusion by the government, though it would be offering some guarantee against the security receipts, which are issued to the (bad loan) selling bank as part of the consideration 
Special 
There is no direct capital infusion by the government, though it would be offering some guarantee against the security receipts, which are issued to the (bad loan) selling bank as part of the consideration The wait for government-backed Bad Bank is only getting longer as the shareholders, mostly public sector banks (PSBs), are still to meet the Rs 100 crore net owned funds requirement, which is the Reserve Bank of India-mandated requirement for setting up an asset reconstruction company (ARC).
The bad bank's structure is two-layered with the National Asset Reconstruction Company (NARCL) operating as an ARC and a separate asset management company called India Debt Management Agency (IDMA) restructuring and turning around the bad loans.
According to sources, the NARCL is in the final stage of meeting the minimum Rs 100 crore capital requirement. Currently, the NARCL has a current paid-up capital of Rs 74.60 crore.
"The existing investors have made some commitment towards capital as the business scales up. There are other banks too, that would be joining as new shareholders. Capital is not an issue for us," says one of the shareholding bank's representatives on the NARCL.
There is no direct capital infusion by the government, though it would be offering some guarantee against the security receipts, which are issued to the (bad loan) selling bank as part of the consideration.
The existing authorised capital of NARCL is Rs 100 crore. The board of the company has recently given its nod for hiking the capital to Rs 200 crore. In the first phase, NARCL will be increasing the paid-up share capital to Rs 149.20 crore. New banks will likely join as shareholders.
Currently, there are eight PSBs, which have contributed Rs 74.60 crore. Canara Bank has contributed the highest equity capital of Rs 12 crore capital. Four banks -- State Bank of India, Union Bank of India, Bank of Baroda and Indian Bank -- have contributed Rs 9.90 crore each. Two banks -- Punjab National Bank and Bank of India -- have provided Rs 9 crore each.
Also read: Shaping India's Bad Bank
The Mid-sized Bank of Maharashtra has given Rs 5 crore.
Four years ago, the RBI had increased the minimum capital requirement for ARC from Rs 2 crore to Rs 100 crore. The idea was to attract serious players in the bad loan resolution market.
In a market where there are over a dozen private ARCs, the setting up of another ARC is part of the government's game plan to clean up the bad loans so the lenders, especially PSBs, direct their energies in lending to productive sectors.
The PSBs have shortlisted close to two dozen NPA accounts, with a total loan value of close to Rs 90,000 crore, which would get transferred to NARCL in the first phase. These loans would be parked in separate trusts under the ARC.
NARCL is headed by SBI's former MD Padmakumar Madhavan Nair, while other directors are Sunil Mehta, IBA's chief executive, Salee Sukumaran Nair, SBI deputy managing director and Ajit Krishnan Nair from Canara Bank.
In the Union Budget 2021-22, the finance minister had announced the formation of an ARC and AMC structure to buy the bad loans of PSBs. The FM had then said the ARC-AMC would manage and dispose of the assets to alternate investment funds (AIFs) and other investors for eventual value realisation.
Once operational, the NARCL would boost the PSBs valuations in the market. This would actually help the banks put up for sale and privatisation by the government.
Also read: What is a bad bank, can it help create good banks?
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