Nirmala Sitharaman outlines a “bad bank” plan with a government guarantee worth Rs 30,600 crore.Nirmala Sitharaman lays out

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Nirmala Sitharaman lays out

The Union Cabinet, according to Finance Minister Nirmala Sitharaman, has approved a critical plan to reduce public sector bank non-performing assets. So there you have it.

The Union Cabinet has approved a critical plan for the establishment of the National Asset Reconstruction Company Limited (NARCL), also referred to as the “bad bank.” There is an aim to reduce the non-performing assets of public sector banks (NPAs).

The Finance Minister, Nirmala Sitharaman, stated at a press conference on Thursday that the cabinet has approved a central government guarantee of up to Rs 30,600 crore for To public sector banks with non-performing assets, the NARCL issues Security Receipts.

Minister of Finance Nirmala Sitharaman stated, “The Union Cabinet adopted Central Budget yesterday.Government guarantee up to Rs 30,600 crores to support Security Receipts to be issued by National Asset Reconstruction Company Limited.

An Asset Reconstruction Company (ARC) and an Asset Management Company were first mentioned by the government in Budget 2021 as proposals to establish a “bad bank” to consolidate and takeexisting public bank stressed debt, manage them, and sell them to buyers for value realisation
Bank asset quality reviews, according to Sitharaman, showed a high rate of non-performing assets in 2015. (NPAs).

The government came up with the ‘4R’ strategy: Recognize, Resist, Recapitalize, and Reform. Following their discovery, a systematic method for quantifying NPAs was developed, and efforts to improve recovery efficiency were made..” were launched. Banks have recovered Rs 5,01,479 crore by diligently implementing the ‘4Rs’ over the last six financial years, according to the finance minister.

Since March 2018, almost Rs 3 lakh crore of the original Rs 5,01,479 crore has been recovered. This shows that the public sector banks have slowly begun to recover around four years ago. Further, only two of the 21 public sector banks had a profit in 2018 and only two have declared losses for the entire year in 2021, according to her analysis.

WHEN AND HOW WILL THIS TAKE PLACE?

Sitharaman elaborated on the NARCL’s operation, saying that it will pay up to 15% of the agreed-upon value for loans in cash, with the rest 85% being guaranteed security receipts by the government.

She went on to add that banks can only be involved in the guarantees if the assets in question are resolved or liquidated. For a period of five years, the assurances will be in effect. A government assurance is valid for five years from the date of issue. This will guarantee that assets are resolved in a timely manner,” Nirmala Sitharaman stated.

It’s worth noting that the NARCL would take over bad loans worth Rs 2 lakh crore from lenders, with Rs 90,000 crore going to the NARCL in the initial round of transfers.

According to the finance minister, the government would also establish an Indian Debt Resolution Company in addition to the NARCL. Public sector banks will own a 51% holding in NARCL and a 49% stake in Debt Management Company, it should be underlined.

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