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What is the News?
The Union Government has approved a proposal that requires the government to guarantee Security Receipts(SR) issued by National Asset Reconstruction Company Ltd (NARCL) when buying non-performing assets (NPAs) from banks.
This will clear the path for the launch of National Asset Reconstruction Company (NARCL).
Note: Security Receipts (SR) are issued by ARCs when Non-Performing Assets(NPAs) of commercial banks(CB) or financial institutions(FI) are acquired by the ARCs for the purpose of recovery.
About National Asset Reconstruction Company Ltd(NARCL)
The NARCL is a type of Bad Bank that has to be set up to resolve the problem of bad loans impacting the public sector banks.
Note: A bad bank is basically an entity that houses the bad loans (non-performing assets) of banks and resolves or liquidates them to recover as much money as it can.
| Read more: Establishment of Bad Banks – associated Issues and Significance |
Sponsored by: The NARCL is sponsored primarily by Canara Bank (likely to take a 12% equity stake) and has equity participation by other nationalised banks.
Functions: NARCL will buy the bad loans from banks and issue security receipts (SR) for up to 85% and cash for the remaining, in line with standard industry practice. These receipts are redeemable as and when the ARC recovers a specific loan.
Source: This post is based on the article “Union Cabinet clears decks for National Asset Reconstruction Company” published in Business Standard on 16th September 2021.
