Sekar put in his papers on August 19, close on the heels of a proposal to merge National Asset Reconstruction Company of India (NARCL) – the bad bank – with India Debt Resolution Company Ltd (IDRCL) which acted as an ‘agent’ to NARCL, two persons aware of the developments told ET.
The merger proposal emanated from IDRCL which is headed by Diwakar Gupta, former managing director of State Bank of India (SBI).
The public sector NARCL and the private sector IDRCL were set up as twin organisations – with the former positioned as the ‘principal’ entity functioning as an asset reconstruction company while the latter operating as a resolution ‘agent’. Sekar, former deputy MD of SBI, stepped down after this arrangement under the dual framework came under question.
Responding to queries from ET, NARCL managing director N Sunder said, “While it is true that Karnam Sekar has resigned from the board of NARCL, those were for strictly personal reasons only. We are absolutely not aware of any recommendations from IDRCL.” Sekar did not response to calls and text messages.
Sources said that according to the suggestion made to the ministry, the two entities should be merged to optimise business opportunities and reduce cost. The ministry, however, may not be in favour of this, they said.
It’s learnt that the issues cropped up at a town hall meeting between NARCL senior officials and employees on Monday.
Under the principal-agent relationship, NARCL acquires stressed loans from banks while IDRCL, serves as the agent with a mandate to resolve the debt.ET had reported on August 2 about the rumblings within the organisation about the constraints of the twin structure and subsequent feelers to the ministry.
The letter is understood to have suggested a bigger role for the IRDCL team in acquisition, pricing, and resolution of stressed loans.
According to one of the officials, NARCL was not formally aware of IDRCL’s proposal to the finance ministry. “We understand, the finance ministry subsequently approached the banking regulator for advice, which led to an impromptu three-day on-site inspection of the books of NARCL and IDRCL by the Reserve Bank of India,” he said. Sunder said it was a routine inspection following completion of one year of operations.
In the course of the meeting, NARCL management told employees that the ministry was not inclined to merge the two entities and that the status-quo would be maintained, at least for the time being. Nonetheless, the developments over the last few weeks have brought to the fore the rift between the two organisations.
Many NARCL employees who feel the organisation, holding the ARC licence, is the prime entity in the dual set up, are disappointed by the better salary structure in IDRCL.
NARCL, the only ARC with dual structure in India, was set up after an announcement in the 2021 budget to help banks clean their books. To facilitate this, the cabinet approved a sovereign guarantee on the security receipts issued by NARCL.
But NARCL’s performance has been fallen short of expectations. It has acquired three accounts with aggregate loans of Rs 10387 crore loans as on June end as against a target of Rs 50000 crore. The slow pace of bad loan acquisition may have prompted IDRCL to approach the finance ministry.