“The SRs (issued by NARCL) will be guaranteed by the government, which will actually give a lot of credibility to these SRs and probably lead to the development of a secondary market for SRs,” Khara said at a virtual event. Organized by Bengal Chamber of Commerce and Industry.
The bad bank or NARCL will pay 15 per cent of the agreed value for the loan in cash and the remaining 85 per cent will be a government-guaranteed security receipt. If there is a loss against the threshold value, the government guarantee will be invoked.
He said that the bad bank would not only act as an aggregator of bad loans but would also ensure that all such assets are integrated with the banking system.
This, Khara said, will reduce the time taken to collect bad loans and help avoid inter-lender litigation.
He said in the case of the National Company Law Tribunal (NCLT), it is not possible to sell the asset to a potential investor, but this possibility exists in case of a bad bank.
On the current low rates offered by banks and mortgage lenders to borrowers, Khara said the price war will not continue indefinitely and is being offered lower rates to lure customers.
“So, the competition on the price point can only go up to a certain extent. Also, it is going to be the delivery of the company that matters and also the access that will be very important for anyone making a decision,” he said.
With the onset of the festive season, several banks and home financiers including State Bank of India, Bank of Baroda, HDFC Ltd and LIC Housing Finance have reduced their home loan rates.
Khara said banks sanction loans based on the EMI/NMI ratio and credit score of the borrowers, which captures the applicants’ history or pool of funds.
The EMI/NMI ratio projects equal monthly installments as a percentage of the applicant’s net monthly income after tax.
Khara also said that he does not see any problem in recovery from the borrowers, who are taking loans at the current low rates.
According to him, misvaluation of risk in the system is still a reality.
“One has to strike a balance and see how much asset growth they can make, but not lose sight of the risk inherent in assets, which are being underwritten,” he said.
He said that there are early signs of new investments coming from sectors like commodities, iron and steel, aluminium.
“We are seeing some traction. Earlier, we were seeing traction coming from public sector entities in terms of new investments spent, but now some private sector entities have also started exploring and looking for new additions. are approaching us for, or alternatively, exploring brownfield capability, which is available in the debt resolution system,” Khara said.