In the budget 2021-22, Finance Minister Nirmala Sitharaman announced the creation of an Asset Reconstruction Company (ARC) to manage the bad loans. National Asset Reconstruction Company Ltd (NARCL) owned by state-owned and private sectors banks without central government involvement, registered wih Registrar of Companies on July 7. It is also known as ‘bad bank’ and has 8 public sector banks as its shareholders. It will carry the business of ARCs like dealing in financial assets and manage, enforce, sell or realise any property or assets that may come into its possessions.
Recently banks have identified 22 assets worth Rs 82,000 crore, to transfer the newly set up Assets reconstruction company i.e. NARCL to recover the bad loans.
What are the Bad loans?
When a person delays the amount which is due on him in banks is known as non performing assets. This amount includes interest amount, installation or prinicipal amount. There is an unprecedented increment in NPAs due to the pandemic, according to the RBI governor. NPA is different from bank frauds which is a criminal offense whereas NPA is a loan or advance remain overdue for a period of 90 days.
As per the RBI, “the asset that is not generating income for the banks, becomes non-performing”. It is rising aggresively in public banks more than private banks.
While the government doesn’t have any equity stake in the company, it will provide guarntee against loan losses. The company will pay to banks 15 percent cash and 85 percent in form of security receipt.
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