Cabinet clears proposal for govt guarantee for bad bank: Key points – Times of India

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NEW DELHI: The Union Cabinet has cleared a proposal to provide Rs 30,600 crore government guarantee for security receipts issued by the National Asset Reconstruction Company (NARCL) as part of resolution of bad loans, finance minister Nirmala Sitharaman said on Thursday.
Briefing reporters on the decision, she said banks have recovered Rs 5.01 lakh crore of unpaid loans in the last six years. Of this, Rs 3.1 lakh crore has been recovered since March 2018.
Here are the key points from her address-

The Union cabinet yesterday approved Central Government guarantee up to Rs 30,600 crores to back Security Receipts to be issued by NARCL.
In 2015, an asset quality review of banks had happened, this review revealed a high incidence of Non-Performing Assets (NPAs).

In 2018, just two out of 21 public sector banks were profitable. But in 2021, only two banks reported losses.
The Centre came up with 4R strategy – recognition, resolution, recapitalisation and reforms for the banking sector.
After recognition, quantification of NPAs started in a planned manner and banks started recovering money.
In the India debt resolution company, public sector banks and financial institutions will hold 49% stake.
Govt will set up India debt resolution company, apart from the NARCL.
The government guarantee for security receipts will be for 5 years.
All bad loans brought to the NARCL will have to be resolved within 5 years.
Public sector banks to hold 51% stake in NARCL, 49% in Debt Management Co; govt in process of setting up India Debt Resolution Co.
15% cash payment will be made to banks for NPAs based on some valuation, 85% will be given as Security Receipts.
For Security Receipts to have their value intact, Govt has to give a backstop arrangement, hence the govt guarantee of Rs 30,600cr cleared by Union cabinet.