The bad bank, a crucial proposal unveiled in the last budget, is likely to be get delayed after the Reserve Bank of India (RBI) reportedly conveyed to lenders last fortnight that it is not ready to allow a dual structure in which one entity buys bad loans and another reaches a resolution, mentioning there is no such legal provision under which the banking regulator can give its nod to such a plan.

According to the proposal given to the central bank, the National Asset Reconstruction Company (NARCL) would have acquiring non-performing assets (NPAs) from banks while India Debt Resolution Company (IDRCL), an asset manager, would provide resolution of these assets.

Citing people familiar with the development, ET reported that the apex bank has informed that as per the Securitisation and Resolution of Financial Assets and Enforcement of Securities Act (Sarfaesi), acquisition and resolution has to be kept under the same structure. The central bank draws its power to control and issue ARCs licences from the Sarfaesi Act.

Worth mentioning here is that the Financial Stability Report—a bi-annual RBI document released recently— said the gross NPA ratio could rise to 9.5 per cent under severe stress conditions by September.

After the central bank flagged concerns, sponsors of NARCL—the state-run lenders—have now suggested a structure where there is a principal-agent relation between NARCL and IDRCL, the publication mentioned. Under the new plan, NARCL will tie up with IDRCL to outsource resolutions of NPA. However, the resolutions offered by IDRCL will not be obligatory for NARCL.

The publication quoted a lender as saying, “Commercial banks wanted the RBI to regulate the dual structure but under the given circumstance they are working on the principal-agent relationship so that RBI will have indirect control over IDRCL.”