FM Nirmala Sitharaman lays out plan for bad bank, approves ₹30,600 crore guarantee

Union Finance Minister Nirmala Sitharaman today said the Union Cabinet has cleared a proposal to provide ₹30,600 crore government guarantee for security receipts issued by the National Asset Reconstruction Company (NARCL) as part of resolution of bad loans.

Addressing a press conference in the national capital, FM Sitharaman said that the NARCL will aggregate NPAs in banks' balance sheets (for which full provisioning has been done) and manage and dispose of them professionally, this will thus clean up banks' balance sheets.

FM Sitharaman had in her Budget speech for 2021-22 announced the creation of National Asset Reconstruction Company (NARCL) or bad bank to resolve large cases of stress.

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- The guarantee will be valid for a period of five years.

- Along with NARCL, the Centre will set up an India Debt Resolution firm, FM Sitharaman has said.

- In NARCL, the public sector banks will have 51% ownership.

- FM Sitharaman said the bank and the RBI have taken various steps to reform the banking sector.

- She also said that the public sector banks are not waiting for the government to infuse capital but are raising funds through equity and debt markets.

- The FM said that in 2018, two out of 21 PSB were profitable. "In 2020-21, only two public sector lenders reported a loss for the full year," she added.

- Around ₹99,000 crore recovered from written-off assets such as Bhushan Steel, Essar Steel, said FM Sitharaman.

- After recognition, quantification of NPAs started in a planned manner, the recovery too started. In the last six fiscal years, the 4Rs – Recognition, Resolution, Recapitalisation, Reforms – were executed meticulously, banks have recovered ₹5,01,479 crore. Of this, ₹3.1 lakh crore have been recovered since March 2018.

- Budget 2021 had announced Govt.’s intention to set up an Asset Reconstruction Company (ARC) along with Asset Management Company to consolidate and take over existing stressed debt and thereafter manage and dispose them off to buyers for value realization

- Cabinet has approved issue of government guarantees up to ₹30,600 crore for security receipts to be issued by NARCL or bad bank, announces Finance Minister

- GST Council to meet tomorrow: The GST Council, chaired by FM Sitharaman, will meet on Friday, which among other things may review tax rate of over four-dozen items and extend till 31 December, tax concessions on 11 Covid-19 drugs.

Also, taxing petrol and diesel under the single national GST tax and a proposal to treat food delivery apps such as Zomato and Swiggy as restaurants and levy a 5% GST tax on supplies made by them would be taken up by the Council at its meeting in Lucknow tomorrow.

- Sitharaman to address media: “FM Smt. @nsitharaman to address a press conference today, 16th September, at 5 PM in New Delhi," tweeted the finance ministry.

Bad Bank plan gets Cabinet nod

Earlier on Wednesday, the Union Cabinet reportedly cleared a proposal to provide government guarantee to security receipts issued by the 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 ₹31,000 crore.

The proposed bad bank or NARCL will pay up to 15% of the agreed value for the loans in cash and the remaining 85% would be government-guaranteed security receipts. The government guarantee would be invoked if there is loss against the threshold value.

Last month, the IBA moved an application to the Reserve Bank of India for a licence to set up a ₹6,000-crore NARCL. The Cabinet nod was required as sovereign guarantee would be extended to security receipts issued by NARCL, according to a PTI report. This will pave the way for operationalisation of the bad bank announced by Sitharaman in the Budget this year.