New Delhi: Union Cabinet on Monday approved Government guarantees Rs 30,600 Crore for the National Asset Reconstruction Company (NARCL), thus paving the way for the operationalization of bad banks.
The proposal has come as a welcome step for the banking sector which has been shaken under bad loan weight.
One of the key ideas behind the formation of malicious banks is to relieve stress on the bank balance sheet.
Last month, the Indian Banking Association (IBA) moved the application to the Reserve Bank of India (RBI) for a license to set NARCL RS 6,000 Crore.
What is Bank Bad Banka Bad Bank is a company structure that isolates risk assets held by banks in separate entities.
Was established to buy non-performing assets (NPA) from the bank at a price determined by the Bad Bank itself.
In budget 2021-22, Minister of Finance Nirmala Sitharaman has announced establishing a bad bank as part of a bad loan settlement worth around Rs 2 Lakh Crore.
According to the announcement conducted on Thursday, the Bad or NarCl Bank will pay up to 15 percent of the agreed value for loans in cash and the remaining 85 percent will be guaranteed by government security receipts.
Government guarantees will be called if there is a loss to the threshold value.
How bank bands will benefit business, consumers if banks have high-performance assets (NPA), most of the benefits will be used to reduce losses.
As a result, any bank with high NPA tends to be more risky and will be less willing to lend money to the borrower.
It will be more difficult for businesses and consumers to take loans from banks, thus impacting overall economic resilience.
In addition, in India, most NPAs are with government public sector banks.
In the past, the government must instill fresh capital to improve PSB’s financial health.
The government invests fresh capital in PSB means fewer money for other schemes.
How many NPAs were carried out by the Bank from March 2021, the total bad loan in the banking system was 8.35 lakh crore.
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Explained: Why India Requires a Bad Bank
