Cabinet approves decks for NARCL
Union Government has approved the decks for National Asset reconstruction Company Limited (NARCL) on September 16, 2021.
- This proposal requires the government to guarantee Security Receipts (SR) issued by NARCL, while buying non-performing assets (NPAs) from banks.
- This move will clear the path for launching NARCL.
Who issue security receipts?
Security Receipts (SR) are issued by Asset Reconstruction Companies (ARCs) when NPAs of the commercial banks (CB) or financial institutions (FI) are acquired by the ARCs for recovery.
About National Asset Reconstruction Company Ltd (NARCL)
NARCL is a type of Bad Bank that are set up to resolve the problem of bad loans which are impacting the public sector banks. They take over the stressed assets of lenders. Proposal to create NARCL was announced in the Budget for 2021-22. It is having a public sector character because e idea is mooted by the government and majority ownership is likely to rest with state-owned banks.
Who Sponsored NARCL?
NARCL is primarily sponsored by Canara Bank. Canara Bank is likely to take 12% equity stake in NARCL. NARCL also has equity participation by other nationalised banks.
Functions of NARCL
NARCL will buy bad loans from banks and issue security receipts (SR) to them for up to 85%. Remaining 25% will be provided in cash. These receipts can be redeemed as and when the ARC recovers a particular loan.
About Bad Bank
Bad-banks are the entities that houses the bad loans or the non-performing assets of banks and liquidates them in order to recover money.