Day after the Union Budget 2021 announced formation of a bad bank, secretaries of the Finance Ministry have said that the government is not going to put any money, neither going to have any shareholding.
In an exclusive conversation with Moneycontrol, Debasish Panda, Secretary, department of financial services and Tarun Bajaj, Secretary, department of economic affairs said, only public sector banks and private sector banks will be the shareholder of the ARC, commonly known as bad bank and management will be in private hands only.
According to Panda, ARC-AMC will be formed very soon, consultation with RBI is going on.
Explaining the details about bad bank, he said, there will be only one ARC-AMC. According to Panda, there will be a mechanism of 15:85. It means banks will get 15 percent as cash and 85 percent value as receipt. Stressed assets worth more than Rs 500 crore will be under this body.
Initially, about 68 to 70 stress assets will come under the bad bank. Total value of these assets will be about two to Rs 2.25 lakh crore. These are those assets for which banks have already made provisioning. Therefore, there will not be any impact of bank's balance sheet.
Adding to this, Bajaj said, by selling these assets banks will get enough capital, which have been blocked and it will fulfill the capital requirement of the banks too.
Immediately after Monday's announcements, banking stocks had rallied in green. IndusInd Bank zoomed 15%, ICICI Bank soared 13%, and State Bank of India jumped 11%.
Among the sectoral indices, Nifty Bank was the best performed surging 8.26% on Monday, followed by Nifty Private Bank index, up 8.06%, and then Nifty PSU Bank, up 7.83%.
Bank Nifty has managed to outperform the benchmarks for the last few trading sessions and the Budget announcements aided that.