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Union Cabinet Sanctions Rs 30,600 Cr Govt Guarantee for Bad Bank

Union Cabinet’s Strategy on ratification of amount…learn more…

Friday, 17th September 2021

The Union Cabinet has given a green signal to the Central Government to provide an amount of Rs 30,600 crore government guaranteeto back security receiptsissued by the National Asset Reconstruction Company (NARCL). According to an announcement by the Finance Minister NirmalaSitharaman, the proposal for the said amount has been cleared as part of resolution for bad loans.

Sitharaman explained the decision and said that over the past six years, banks have been able to recover Rs 5.01 lakh crore of unpaid loans, of which Rs 3.1 lakh crore has been retrieved since March, 2018.

Here are the highlights of what the finance minister announced.

  • Back in 2015, there was an asset quality review of banks that had taken place which brought to light a high prevalence of Non-Performing Assets (NPAs).
  • By 2018 it was seen that only 2 out of the 21 public sector banks were showing profits. However, the situation reversed by 2021 and only 2 banks reported losses.
  • The central government then proposed their 4 r solution to haul the banking sector out of the rut - recognition, resolution, recapitalisation and reforms.
  • Soon banks began to recover money after they started quantification of NPAs in a systematic way.
  • The Centre is setting up a National Asset Reconstruction Company Ltd along with an Indian Debt Resolution Co Ltd.
  • This will make the total stake held collectively by debt resolution companies, public sector banks and financial institutions at 49 per cent. Public sector banks will hold the remainder 51 per cent ownership in NARCL
  • The time period for government guarantee for security receipts will be of 5 years within which loans brought to the NARCL will need t be resolved.
  • Sitharaman said, “The idea is to ensure value locked within assets is used for making banking system robust. So, the time line provides an incentive for banks.”

The News Talkie Bureau



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