Cabinet may soon clear proposal for govt guarantee to bad bank

According to sources, the proposal is before the Cabinet and its nod is required to extend sovereign guarantee to security receipts issued by NARCL.

Published: 29th June 2021 03:50 PM  |   Last Updated: 29th June 2021 03:50 PM   |  A+A-

Nirmala Sitharaman

Finance Minister Nirmala Sitharaman (File Photo | PTI)


NEW DELHI: The Union Cabinet may soon clear a proposal to provide government guarantee to security receipts issued by the National Asset Reconstruction Company (NARCL) as part of resolution of bad loans.

Indian Banks' Association (IBA), entrusted with the task of setting up a bad bank, has pegged the government guarantee to be around Rs 31,000 crore.

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 would be invoked if there is loss against the threshold value.

According to sources, the proposal is before the Cabinet and its nod is required to extend sovereign guarantee to security receipts issued by NARCL.

Approval from the Cabinet that is expected soon will pave the way for operationalisation of the bad bank announced by Finance Minister Nirmala Sitharaman in the Budget this year, the sources added.

The Finance Minister in Budget 2021-22 announced that the high level of provisioning by public sector banks of their stressed assets calls for measures to clean up the bank books.

"An Asset Reconstruction Company Limited and Asset Management Company would be set up to consolidate and take over the existing stressed debt," she had said in the Budget speech.

It will then manage and dispose of the assets to alternate investment funds and other potential investors for eventual value realisation, she had said.

Last year, IBA made a proposal for the creation of a bad bank for swift resolution of non-performing assets.

The government accepted the proposal and decided to go for asset reconstruction company and asset management company model in this regard.

Meanwhile, state-owned Canara Bank has expressed its intent to be the lead sponsor of NARCL with a 12 per cent stake.

The proposed NARCL would be 51 per cent owned by PSBs and the remaining by private sector lenders.

NARCL will take over identified bad loans of lenders.

The lead bank with an offer in hand of NARCL will go for a 'Swiss Challenge' wherein other asset reconstruction players will be invited to better the offer made by a chosen bidder for finding higher valuation of a non-performing asset on sale.

The company has picked up those assets that are 100 per cent provided for by the lenders.

Banks have identified around 22 bad loans worth Rs 89,000 crore to be transferred to NARCL in the initial phase.


Disclaimer : We respect your thoughts and views! But we need to be judicious while moderating your comments. All the comments will be moderated by the editorial. Abstain from posting comments that are obscene, defamatory or inflammatory, and do not indulge in personal attacks. Try to avoid outside hyperlinks inside the comment. Help us delete comments that do not follow these guidelines.

The views expressed in comments published on are those of the comment writers alone. They do not represent the views or opinions of or its staff, nor do they represent the views or opinions of The New Indian Express Group, or any entity of, or affiliated with, The New Indian Express Group. reserves the right to take any or all comments down at any time.

flipboard facebook twitter whatsapp