Bad Bank's Chairman Karnam Sekar Resigns After Proposal To Merge With IDRCL

Karnam Sekar, Chairman of the National Asset Reconstruction Company of India (NARCL) tendered his resignation due to disagreements concerning the institution’s structure and operations. This resignation follows a proposal for merging NARCL with India Debt Resolution Company Ltd (IDRCL).

The Origin of the Merger Proposal

The proposal to merge NARCL and IDRCL was initiated by IDRCL, which is headed by former State Bank of India managing director Diwakar Gupta. The suggestion was brought before the Finance Ministry with the aim of optimizing business opportunities and reducing costs through consolidation.

Under the current structure, NARCL serves as the ‘principal entity,’ responsible for acquiring and aggregating bad loan accounts from banks. In contrast, IDRCL operates as a resolution agent, focusing on the loan resolution process. The merger would potentially reshape this division of responsibilities, leading to concerns and debates about the optimal structure of these entities.

National Asset Reconstruction Company of India (NARCL)

NARCL is registered with the Reserve Bank of India as an Asset Reconstruction Company under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. NARCL’s primary objective is to address and resolve stressed loan assets exceeding ₹500 crore each, with a total value of approximately ₹2 lakh crore.

Bad Bank: Easing the Burden on Financial Institutions

A bad bank is a financial institution established with the purpose of acquiring Non-Performing Assets (NPAs) or Bad Loans from banks. The primary goal of creating a bad bank is to alleviate the pressure on banks by removing bad loans from their balance sheets, allowing them to resume lending to customers without hindrance. Upon purchasing a bad loan from a bank, the bad bank may later attempt to restructure and market the NPA to potential investors interested in its acquisition.

Karnam Sekar: Accomplished Banking Professional and Chairman of NARCL

Karnam Sekar is a seasoned banking professional with extensive experience in various senior roles within the Indian banking sector. His career commenced as a Probationary Officer with State Bank of India in 1983, culminating in his appointment as Deputy Managing Director. Subsequently, he assumed leadership positions as the Managing Director of Dena Bank from 2018 to 2019 and Indian Overseas Bank from 2019 to 2020.