Banks will transfer sticky loans to the proposed ‘bad bank’ that have been fully provided for in their books. This will be done after lenders with at least 75% exposure agree on a deal — the norm that will distinguish the new institution from existing asset reconstruction companies (ARCs) in the country.
About a dozen lenders, including some of the large state-owned entities, such as Rural Electrification Corporation and Power Finance Corporation would be approached for equity participation in the bad bank — being positioned as a national ARC.
The broad contours of the ARC, which would focus on acquiring loans above ₹500 crore, were discussed at a recent meeting between CEOs of some of the large banks and senior finance ministry officials, two persons privy to the talks told ET.
Since ‘security receipts’ (SRs) issued by the national ARC will be partly backed by the government, the Reserve Bank of India may consider new regulations for it. Current RBI rules require banks to auction any sale of loans to ARCs towards deriving the maximum realisable value from the asset and the collaterals.