Private banks: Four private banks pick up 9.9% each in India Debt Management Company

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Mumbai: Four of India’s top private-sector lenders, including HDFC Bank and ICICI Bank, have agreed to pick up 9.9% each in a company that will manage and eventually resolve stressed assets owned by a state-initiated bad bank, unveiling a mechanism that practically separates ownership and management of soured loans and gives government lenders controlling stakes in the asset reconstruction company.

Axis Bank and IDBI Bank will join its more valuable peers in buying equity into the India Debt Management Company Limited (IDMCL), which would assist the National Asset Reconstruction Company (NARCL). IDMCL will be majority owned by private sector lenders, while NARCL will have predominantly public sector ownership.

Lenders led by the Indian Banks Association (IBA) are set to seek ARC licences from the central bank this month, and are hopeful that the bad bank would be operational by August.

“All the groundwork is in place to operationalise the bad bank; we are seeking a licence from the RBI this month and are hopeful that the asset transfers will start beginning August,” said a senior bank official involved in the planning and implementation of the bad bank. “This will significantly help take the load off bank books.”

HDFC Bank, Axis Bank, ICICI Bank and IDBI Bank did not respond to ET’s mailed queries.

Lenders led by IBA have also made a case with the RBI to regulate the debt management company, avoiding dual regulations involving capital markets regulator Sebi.

“There is ambiguity around the basic constitution of the debt management company and who should regulate it,” another official with a private bank said. “While a debt management company should be regulated by Sebi, we have requested RBI regulate both NARCL and IDMCL to avoid dual regulators.”

State-owned

will be the lead sponsor of NARCL with a 12% stake. The NARCL would be 51% owned by PSBs and the remaining by private sector lenders. Private banks will hold more than 51% stake in the debt management company.

The asset reconstruction company will take over identified bad loans of lenders and pay up to 15% of the agreed value of loans in cash and the remaining 85% would be in government-guaranteed security receipts. These guarantees are expected to cost the exchequer nearly Rs 31,000 crore.

In the first phase, NARCL will take up those assets that are 100% provided for by the lenders. Banks have identified 22 bad loans worth Rs 89,000 crore to be transferred to in the initial phase and could eventually handle stressed debt of over Rs 2 lakh crore.

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