Transfer of bad loans from banks to NARCL hits indemnity hurdle now

economictimes.indiatimes.com:

banks to the government-backed bad debt aggregator National Asset Reconstruction Co (NARCL) have stalled once again due to differences over specific wordings of the agreement between the entities, people familiar with the matter said. «NARCL has insisted on banks signing an agreement which absolves NARCL from any future liabilities arising from the assets sold like fraud cases or investigations from government agencies. Banks have refused to do this, resulting in a stalemate,» said a person aware of the matter.

Bankers said the condition by NARCL is unrealistic and will not pass muster with their respective boards. They have refused to give NARCL any blanket indemnity and insisted that just like other asset reconstruction companies (ARCs), all future legal and other liabilities will have to be borne by NARCL after the transfer of the assets. «How can banks give such an indemnity? This is a classic case of bureaucracy overriding logic.

NARCL wants this blanket waiver forgetting that the banks it wants the waiver from are its owners and any loss will have to ultimately be borne by them,» said a second person aware of the issues. The differences are the latest in a series of delays the NARCL has faced in starting operations. This means no asset has yet been transferred to the NARCL so far this fiscal.

In the first three months of this fiscal, no asset could be transferred because banks were waiting for the government to renew its guarantee. The guarantee, special to NARCL and valid for five years, is to be invoked by banks in case of resolution or liquidation of the asset. It will cover the shortfall between the face value of security receipts and the actual realisation from the account when NARCL finds a buyer.