“The SRs (issued by NARCL) are going to be guaranteed by the government, which actually will lend a lot of credibility to these SRs and perhaps it will lead to the development of the secondary market for SRs,” Khara said at a virtual event organised by Bengal Chamber of Commerce and Industry.
The bad bank or NARCL will pay up to 15 per cent of the agreed value for the loans in cash and the remaining 85 per cent would be government-guaranteed security receipts. The government guarantee would be invoked if there is a loss against the threshold value.
He said the bad bank will not merely act as an aggregator of bad loans but will ensure that aggregation of all such assets with the banking system happens.
This, Khara said, will minimise the time taken for aggregating the bad loans and help in avoiding the inter-lender litigations.
He said in the case of the National Company Law Tribunal (NCLT), it is not possible to sell the asset to the potential investor, but in the case of bad bank that possibility exists.
On the current low rates offered by banks and mortgage lenders to borrowers, Khara said the price war will not continue indefinitely and the lower rates are being offered to entice the customers.
“So, competition on the price point can go only up to a certain extent. Beyond that, it is going to be the delivery of the company, which will matter and also the reach which will be very significant for anybody to make a decision,” he said.
With the onset of the festive season, many banks and home financiers, including State Bank of India, Bank of Baroda, HDFC Ltd and LIC Housing Finance have lowered their home loan rates.
Khara said banks sanction loans on the basis of the EMI/NMI ratio and borrowers credit score, which captures the history or pool of money of applicants.
EMI/NMI ratio projects equated monthly instalments as a percentage of the applicant’s post-tax net monthly income.
Khara also said he does not see any issue in recovery from borrowers, who are availing loans at the current low rates.
According to him, mispricing of risk is still a reality in the system.
“One has to strike a balance and see how much of the asset growth they can undertake, but should not take away eyes from the risk inherent in the asset, which is being underwritten,” he said.
There are early signs of the fresh investments coming in from sectors such as commodity, iron and steel, aluminium, among others, he added.
“We are seeing some traction. Earlier, we were seeing traction coming from public sector entities in terms of fresh investment spent, but now some of the private sector entities have also started exploring and also approaching us for new additions, or alternatively, looking for the brownfield capacity, which is available in the debt resolution system,” Khara said.