The National Asset Reconstruction Company (NARCL) has estimated its total capital requirement to be Rs 6,000 crore. According to a proposal shared with investors, the banks and financial institutions that would be shareholders in the new ARC have been asked to contribute to both the equity and debt requirements of Rs 6,000 crore.

According to the proposal, which Business Standard reviewed, the capital funding structure would have a debt-to-equity ratio of 1:1. This is proposed to be raised from the investors in the asset reconstruction company (ARC).

Earlier this month, Lenders decided to transfer 22 bad loan accounts totaling 89,000 crore to the proposed National Asset Reconstruction Company Ltd (NARCL), assisting in the cleanup of their balance sheets.

The total amount of bad loans that will most likely be transferred in trenches will be $2 trillion.

An Asset Reconstruction Company is a specialised financial institution that purchases non-performing assets (NPAs) or bad assets from banks and financial institutions in order to help them clean up their balance sheets. To put it another way, ARCs are in the business of purchasing bad loans from banks.

The equity shareholders of NARCL are State Bank of India (SBI), Punjab National Bank, Bank of Baroda, and Union Bank of India.

Aside from the aforementioned PSU banks, some private sector banks, including ICICI Bank, HDFC Bank, and Axis Bank, have been approached to hold less than 10% of the entity. Public sector lender Canara Bank will be the lead sponsor and biggest shareholder of National Asset Reconstruction Company Ltd (NARCL).