Punjab National Bank (PNB) in India is set to transfer around INR80bn ($1.1bn) worth of non-performing assets to bad bank National Asset Reconstruction Company (NARCL).

Bad bank refers to an entity that takes over stressed assets of the lenders and initiate a resolution.

The Government of India proposed the formation of the bad bank in the union budget. NARCL will have lenders as its promoters, while shares of each bank will stand below 10%.

The lender is expected to become operational by 1 July 2021.

PNB managing director S. S. Mallikarjuna Rao said that the lender identified INR80bn worth of bad loans for transfer in the first tranche.

However, no decision has been taken if the amount will be transferred at net book value, reported Business Standard.

Following the transfer, the bad bank is expected facilitate an easy process of auctioning of the assets through the Swiss challenge method, the publication added.

PNB is one of the largest public sector lenders in India. Previously, two other state-owned lenders Oriental Bank of Commerce (OBC) and United Bank of India merged into PNB as part of a mega merger plan.

In December last year, PNB completed the process of IT integration of erstwhile OBC branches with itself.

The bank reported a profit of INR5.86bn ($) crore in January-March quarter of 2021.