Canara to be lead sponsor of bad bank, to pick up 12% stake

New Delhi: State-owned Canara Bank on Tuesday said it will be the lead sponsor of National Asset Reconstruction Company Limited (NARCL) or bad bank with 12 per cent stake in the entity.

Bad bank refers to a financial institution that takes over bad assets of lenders and undertakes resolution.

"The Indian Banks' Association (IBA), vide their letter dated May 13, 2021 requested Canara Bank to participate in NARCL as sponsor. The board of Canara Bank has given in-principle approval for taking stake in NARCL," Canara Bank said in a regulatory filing.

Following the board nod, it said, the bank has sought the approval from the Reserve Bank of India for participating in NARCL as sponsor contributing 12 per cent stake.

Various public sector banks (PSBs) have also announced that they have earmarked a signification portion of their NPAs to be transferred to NARCL.

For example, Punjab National Bank (PNB) said that it has identified non-performing assets of Rs 8,000 crore to be transferred to NARCL.

The proposed NARCL would be 51 per cent promoted by PSBs and remaining by private sector lender. Banks have identified around 22 bad loans worth Rs 89,000 crore to be transferred to the NARCL in the initial phase.