By Aditya Raghunath
Investing.com -- On September 16, Finance Minister Nirmala Sitharaman announced that the government would guarantee Rs 30,600 crore as security receipts which will be issued by the National Asset Reconstruction Company Ltd (NARCL), or the ‘bad bank’.
Sitharaman said, “We are also setting up an India Debt Resolution Company Ltd to manage the Non-Performing Assets (NPAs). In this company, public sector banks (PSBs) and state-owned financial institutions will own 49% stake.” She added that private sector banks will also be allowed to hold a stake.
Traditionally, the way a bad bank or an asset reconstruction company works is that its pays 15% cash upfront to the lenders and the balance in security deposits. The NARCL seems to be following the same template.
“A 15% cash payment will be made to banks for their toxic assets, 85% will be security receipts. There will be a backstop guarantee for the banks," the FM said. Sitharaman added that the security receipts which provide backstop funding, will be valid for five years.
“Through setting up of NARCL and various other steps taken in recent years, we have in totality addressed the issues facing the Indian banking sector, which was in 2015 staring at us with twin balance sheet problem. We now have a way of resolving the stressed assets,” she added.
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The Bad loans in banking system could be multiple times of support being offered by Govt. It shows the health of banking sector.Like 1