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Centre approves govt guarantee up to ₹30,600 cr for bad bank
Union finance minister Nirmala Sitharaman said that an asset quality review of banks that were conducted in 2015 revealed a high incidence of Non-Performing Assets (NPAs).
The Union Cabinet has approved government guarantee up to ₹30,600 crores for security receipts to be issued by National Asset Reconstruction Company Limited (NARCL), finance minister Nirmala Sitharaman said on Thursday.
Briefing the media on the decisions taken by the Cabinet on Wednesday, Sitharaman said that an asset quality review of banks that were conducted in 2015 revealed a high incidence of Non-Performing Assets (NPAs).
Since then, the government has executed its 4Rs strategy: recognition; resolution; recapitalisation; and reforms, to recover over ₹5 lakh crore, the finance minister said. She noted that the banking reforms have turned losses into profits.
“In 2018, just two out of 21 public sector banks were profitable. But in 2021, only two banks reported losses,” she said.
NARCL has been set up by banks to aggregate and consolidate stressed assets for their subsequent resolution. While there are existing asset reconstruction companies (ARCs), the government suggests that they have been helpful in the resolution of stressed assets particularly for smaller value loans.
According to the finance ministry, additional alternatives are required due to the large stock of legacy NPAs. The Central government's guarantee of up to ₹30,600 crore will back Security Receipts (SRs) issued by NARCL and the guarantee will be valid for five years.
"I had announced in Budget 2021-22 with an intention to set up an asset reconstruction company and an asset management company to take over the existing stressed assets like loans," Sitharaman said.
The government also announced the setting up of India Debt Resolution Company Limited in which the public sector banks and public financial institutions will have a maximum of 49% stake while the rest will be for private players. PSBs will also have 51% ownership in NARCL.
