PNB has announced plans to purchase stocks in the National Asset Reconstruction Company Limited (NARCL) and has identified non-performing assets worth Rs 8,000 crore to be moved to the bad bank that has been proposed for resolution.
What exactly are “Bad Banks”? Bad banks are financial institutions that take over non-performing or bad assets and offer a viable solution. An Asset Reconstruction Company (ARC) or an Asset Management Company (AMC) is a company that takes over problematic loans from commercial banks, manages them, and recovers the money within a certain time frame.
“All banks are forming a NARCL, and some NPA advances will be transferred to the ARC for recovery… NARCL is designed to be pushed by public-sector participation of 51%.public sector participation. After State Bank of India, we are the second largest public sector bank in India “S.S. Mallikarjuna Rao, the managing director of PNB, stated. The initial transfer to the NARCL will be worth Rs 8,000 crore, and the same amount would be subtracted from the credit, according to the Managing Director.
He revealed that public sector banks had detected NPAs of Rs 84,000 crore. Rao further stated that PNB does not need to raise money at this time because it is adequately capitalized. The bank raised Rs 1,800 crore in May by selling 53 crore shares to investors like Societe Generale and Life Insurance Corpo on a Private Placement basis (selling stock shares or bonds to pre-selected investors and institutions rather than on the open market; is an alternative to an initial public offering or IPO for a company seeking expansion by raising capital) (LIC).
At the end of March this year, the bank’s Capital Adequacy Ratio (a measure of a bank’s available capital expressed as a percentage of a bank’s risk-weighted credit exposure) was 14.32 percent, he said. It would be boosted to 14.62 percent with the funding of Rs 1,800 crore through Qualified Institutional Placement (which permits an Indian-listed firm to raise capital from domestic markets without having to submit any pre-issue paperwork to the market regulator).
The Managing Director of PNB, in response to the recent order on Kingfisher Airlines issued by the Prevention of Money Laundering Act (PMLA) court, stated that the bank does not have much outstanding and that the bank will receive its portion of the sales profits.
Need for Bad Banks in India
With the epidemic wreaking havoc on the economy and financial industry, the Reserve Bank of India fears a rise in bad loans as a result of the 6-month moratorium it imposed to combat the slowdown. Professionally administered bad banks, funded by private lenders and backed by the government, can save the day when it comes to dealing with non-performing assets (NPA). According to the RBI’s Financial Stability Report (FSR), gross nonperforming assets (NPAs) will rise to 13.5 percent in September 2021 from 7.5 percent in September 2020. As a result, Bad Banks are expected to provide a brief relief in India’s Covid-19-ravaged economy.