Bad Banks

Subject – Economy

Context – ‘Bad Bank’ to start off with 15 stressed assets worth ₹50,000 cr

Concept –

In a bid to clean up their books, banks will transfer 15 stressed assets aggregating about ₹50,000 crore by March-end to the National Asset Reconstruction Company Ltd (NARCL).
NARCL, which has already been set up by banks, will aggregate and consolidate select stressed assets in the financial system for their subsequent resolution. Public sector banks hold a majority stake in the ARC.
Along with NARCL, a service company/operational entity, India Debt Resolution Company Ltd (IDRCL), has also been floated for resolving the stressed assets. Private sector banks hold a majority stake in the DRC.
NARCL will acquire the identified assets by paying the lenders 15 per cent of the acquisition value in cash and 85 per cent via Security Receipts/ SRs. These SRs will be secured by the Government of India guarantee for their face value.
The broad features of the arrangement are that NARCL will acquire and aggregate the identified stressed accounts from banks, while IDRCL, under an exclusive arrangement, will handle the debt resolution process.

To know more about Bad Banks, please refer September 2021 DPN.

To know about Asset Reconstruction Company, please refer July 2021 DPN.