The government is planning for a ‘bad bank’ and could get approval from the Cabinet soon

The Union Cabinet may soon approve the government’s guarantee of National Asset Reconstruction Company (NARCL) vouchers set up to address bad debts. The Indian Banks Association (IBA) has raised the government guarantee in this case to about Rs 31,000 crore. Bad Bank is responsible for the creation of the NARCL, ie Bad Bank.

The proposed bad bank provides 15 percent of the agreed value of the loan in cash and the remaining 85 percent is in the form of a government guaranteed security receipt. If there is a loss in the specified price limit, the government guarantee is encached. According to sources, the proposal was sent to the Cabinet and required government guarantees for security vouchers to be issued by NARCL.

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The proposal is expected to be approved by the Cabinet soon, he said. This can lead to bad bank execution. Finance Minister Nirmala Sitharaman announced the creation of the worst banks in the 2021-22 budget. Last year, the IBA proposed creating a bad bank to quickly address passive assets (NPAs). The Government accepted the proposal and decided to adopt the Asset Reconstruction Company and Asset Management Company model.

Meanwhile, state-owned Canara Bank has announced its intention to become the main sponsor of NARCL, which has a 12 per cent stake. Public sector banks hold 51 per cent of the proposed NARCL, while the rest is with private sector banks.

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