NewDelhi : Union Finance Minister Nirmala Sitharaman, on Thursday, announced that the government will provide Rs 30,600 crore in guarantees to National Asset Reconstruction Company Ltd. (NARCL) to buy bad loans from banks.
“Central Government guarantee of Rs.30,600 crore to back Security Receipts issued by National Asset Reconstruction Company Limited (NARCL) for acquiring stressed loan assets was approved by Union Cabinet yesterday” said a Finance Ministry release.
NARCL has been incorporated under the Companies Act and has applied to Reserve Bank of India for license as an Asset Reconstruction Company (ARC). NARCL has been set up by banks to aggregate and consolidate stressed assets for their subsequent resolution. PSBs will maintain51% ownership in NARCL.
NARCL proposes to acquire stressed assets of about Rs. 2 Lakh crore in phases within extant regulations of RBI. It intends to acquire these through 15% Cash and 85% in Security Receipts (SRs).
“This would help clean-up the books of banks. The assets being transferred to the NARCL are those against which full provisions have been made. For the government, this will act as a contingent liability and won’t add to the fiscal deficit immediately” Sitharaman said.
The NARCL – IDMCL structure will assist in consolidation of debt, currently fragmented across various lenders, thus leading to faster, single point decision making including through IBC processes, where applicable. It will incentivize quicker action on resolving stressed assets thereby helping in better value realization. India Debt Resolution Company Limited (IDRCL) will engage market expertise for value enhancement. This approach will also permit freeing up of personnel in banks to focus on increasing business and credit growth. As the holders of these stressed assets and SRs, banks will receive the gains. Gol’s guarantee will also enhance liquidity of SRs as such SRs are tradable.