The government has approved a proposal to provide a sovereign guarantee of Rs 30,600 crore. The security receipts issued by the National Asset Reconstruction Company (NARCL) against bad loans. Finance Minister Nirmala Sitharaman has given this information in her address to the media.
She said that the guaranteed money will be given to the bad bank and the Asset Reconstruction Company (ARC) only when the bad loan is resolved or its liquidation takes place. The government guarantee on the security receipt will be given for five years. A total of 2 lakh crore bad loans will be given to NARCL. In the first phase, bad loans worth Rs 90,000 crore will be transferred to him.
The government will not have to withdraw anything from its treasury for the guarantee, as it is a contingent liability. The guarantee can be encashed when the bad bank or the asset reconstruction company is unable to recover the bad loan as much as it would have paid. NARCL will give 15% of the amount in cash against bad loans of banks and will issue a security receipt of 85%.
Government guarantee cleared the way for bad bank
The Finance Minister had said in this year’s budget that public sector banks have to do a lot of provisioning for bad loans. In view of this, it is very important to clean their books of account i.e. remove bad loans. Now the way for the opening of a bad bank has been cleared due to the government’s guarantee to the securities issued for bad loans.
The government decided to adopt the model
It is worth noting that the Indian Banks Association (IBA) had last year proposed to set up a bad bank to make settlement of bad loans faster. Accepting the proposal of IBA. The government decided to adopt the model of Asset Reconstruction Company (ARC) and Asset Management Company (AMC).
Bank may hold a 12% stake in NARCL
The bank may hold a 12% stake in NARCL, primarily sponsored by Canara Bank. In this, other public sector banks can also take equity shares. NARCL will provide an 85% security receipt to banks against bad loans as per market trends. The rest will be given in cash.
What is Bad Bank?
A bad bank is an institution that buys bad loans from banks. He tries to recover the maximum amount from her settlement. The biggest advantage of making a bad loan is that in this loan recovery decisions can be taken quickly. Large loans are usually given in consortium and the recovery term requires the consent of most lenders.
What was proposed in the budget?
Finance Minister Nirmala Sitharaman had proposed the creation of Asset Reconstruction Company (ARC) and Asset Management Company (AMC) in the budget. Through ARC, the dues will be recovered by settling the bad loans, while the companies which are on the verge of bankruptcy will be transformed through AMC. The AMC has to be made with the private sector together.
GST Council will be held in Lucknow
The Finance Minister will preside over the 45th meeting of the GST Council to be held in Lucknow tomorrow. Apart from the Finance Ministers of all the states and union territories of the country, officials of the central and state government will participate in the meeting. According to PTI, food delivery apps like Zomato and Swiggy can be put in the category of restaurants in the GST Council. If this happens, their service will attract a GST of 5%.
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