Still Not Done…
While the NARCL has been under discussion since October last year, a number of hurdles still need to be crossed.
For one, the IBA has to seek an ARC license from the Reserve Bank of India. According to the first banker cited earlier, the IBA is yet to submit a proposal to the banking regulator.
Another tricky aspect is the treatment of dissenting creditors in the voting process. The IBA is yet to get all lenders on board to participate in the resolution process through the NARCL structure. Without all lenders agreeing to the sale, the objective of aggregation for resolution would not work, the bankers said. Already, Yes Bank Ltd.’s Managing Director and Chief Executive Officer Prashant Kumar has publicly said the lender may not participate in the sale process and would rather sell its assets to an ARC where the bank has control.
The IBA is also yet to complete the process of appointing staff and management at the NARCL. These people will not only be responsible for determining the assets to be bought from banks, but also manage cash flows of the entity, including settlement of recoveries against security receipts.
According to Aroop Sircar, former chief general manager at State Bank of India, who was directly involved in large restructuring cases, the structure of the NARCL as it looks now could lead to lower interest from bankers.
“The higher provisioning requirement will ensure that only a handful of cases where recoveries by banks are unlikely will be transferred to the structure. It will need to be tweaked further to ensure that it is something which will be useful to banks,” Sircar said. Even if the structure is made immediately operational, it would be some time before it can truly create an impact on the resolution of stressed assets, he said.