New Delhi: Union Cabinet immediately cleared the proposal to provide government guarantees for security revenues issued by the National Asset Reconstruction Company (NARCL) as part of a bad loan settlement.
The Bank India Association (IBA), entrusted with the task of establishing a poor bank, has broken government guarantees for around RS 31,000 Crore.
Bank Bad Bank or NARCL will pay up to 15 percent of the agreed value for cash loans and the remaining 85 percent will be guaranteed by government security acceptance.
Government guarantees will be called if there is a loss to the threshold value.
According to the source, the proposal before the Cabinet and its nod is needed to extend the sovereign guarantee of the security revenue issued by NARCL.
The approval of the cabinet which is expected to open the way for the operationalization of the Bad Bank announced by the Minister of Finance Nirmala Sitharaman in this year’s budget, the source added.
The Minister of Finance in the 2021-22 budget announced that the high level of supply by public sector banks on their stress assets called for steps to clean the bank’s book.
“Limited asset reconstruction companies and asset management companies will be arranged to consolidate and take over existing stress debt,” he said in budget speeches.
This will then manage and dispose of assets to replace other potential investment and investors for the realization of the final value, he said.
Last year, Iba made a proposal for the creation of poor banks for fast resolution of non-performance assets.
The government received a proposal and decided to go for the asset reconstruction company and the asset management company model in this matter.
Meanwhile, the State Canara Bank has stated that it means to be the main sponsor of NARCL with a 12 percent staple.
The proposed NARCL will be 51 percent owned by PSB and the rest by the private sector lenders.
NARCL will take over the loan loans identified.
The main bank with offers in the hands of Narcl will go for ‘Swiss Challenge’ where the reconstruction players of other assets will be invited to better bids made by the selected bidder to find a higher assessment of non-performance assets sold.
The company has taken assets provided by 100 percent by lenders.
The bank has identified around 22 bad loans worth RS 89,000 Crore to be transferred to NARCL in the initial phase.