New Delhi: Union Finance Minister Nirmala Sitharaman said the government will create 2 separate entities National Asset Reconstruction Company Limited and Indian Debt Resolution Company. The Union Cabinet on Wednesday approved Central Government guarantee up to Rs 30,600 crores to back Security Receipts to be issued by National Asset Reconstruction Company Limited.
"We are also setting up India Debt Resolution Company Ltd. The PSBs will have 49% stake in India Debt Resolution Company Ltd, the rest will be for private players," Sitharaman said.
In 2015, an asset quality review of banks had happened, this review revealed a high incidence of Non-Performing Assets (NPAs), she said. Large frauds have an average lag time of 57 months. NPAs are not born overnight. Large frauds take time to be detected. In the last six financial years, the govt's 4Rs strategy-Recognition, Resolution, Recapitalisation and Reforms- was executed, after this banks have recovered Rs 5,01,479 crores.
In 2018, just two out of 21 public sector banks were profitable. But in 2021, only two banks reported losses, she said.
National Asset Reconstruction Company Limited will aggregate the Non-Performing Assets in banks' balance sheets for which full provisioning has been done and manage and dispose of them professionally, enabling to clean up banks' balance sheets. All bad loans brought to the NARCL will have to be resolved within 5 years. The proposed bad bank or NARCL will pay up to 15 per cent of the agreed value for the loans in cash and the remaining 85 per cent would be government-guaranteed security receipts. The government guarantee for security receipts would be for a period of five years, said the finance minister.
The government guarantee would be invoked if there is a loss against the threshold value. The government guarantee can be invoked by NARCL for meeting the shortfall between the face value of the security receipt and the actual realisation upon resolution or liquidation.
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