PSU banks seek RBI oversight on IDRCL for smooth NPA resolution

PSU lenders and the Reserve Bank of India (RBI) are trying to sort out the regulatory and legal status of the private sector company that would resolve the sticky loans that the ‘bad bank’ acquires.

Under the unique twin-company structure, National Asset Reconstruction Company Ltd (NARCL) – the bad bank in which the majority shareholding is with public sector banks – would buy bad loans from commercial banks, while India Debt Resolution Company Ltd (IDRCL), where private sector institutions would hold 51% equity, would focus on the resolution of the loans purchased.

“Public sector banks want the RBI to ‘recognise’ IDRCL. Since IDRCL will be responsible for running complex resolution processes, it may come across legal challenges. These can be best handled if the entity has a regulatory recognition,” a person familiar with the ongoing discussion between RBI and banks he said. “However, RBI has certain reservations about this because existing regulations have no provisions for such a structure,” he said.