NARCL will pay up to 15% of the agreed value for cash loans and the remaining 85% will be government-guaranteed security receipts.
“We have addressed the issues in the banking sector that were staring at us in 2015,” Sitharaman said.
He said that banks have recovered over Rs 5 lakh crore in the last six financial years, of which Rs 3.1 lakh crore has been recovered since March 2018. The Finance Minister also said that Rs 99,000 crore has been recovered from write-off assets like Bhushan Steel, Essar Steel.
“SRs are getting backstop only through government funding to pay the difference between their actual value and face value and it will be good for five years,” he said. The fee that NARCL will pay to the government for such guarantees will continue to increase, thereby incentivizing expeditious disposal of assets.
In the Union Budget for FY22, FM Sitharaman An Asset Reconstruction Company and an Asset Management Company were announced to consolidate and handle stressed debt of Indian banks.
According to a joint study by Assocham and Crisil, the gross non-performing assets of Indian banks are likely to exceed Rs 10 lakh crore by March 2022. NPAs are expected to rise to 8.5-9% by March 2022 due to decline in retail, MSME accounts and some restructured assets.
State-run Canara Bank will be the major sponsor of NARCL with 12% stake, while the public sector banks together will hold 51% of NARCL.
The Finance Minister said today that the government has plans to set up India Debt Resolution Company. Under the proposed model, NARCL will acquire the property. The debt management company, set up under a dual structure, will manage them and raise institutional funds through Alternative Investment Funds (AIFs).
SBI’s Padmakumar Nair has been elected as the head of NARCL and IBA’s chief executive Sunil Mehta will be its non-executive chairman.
Banks have identified 22 bad loan accounts in the first phase, totaling around Rs 89,000 crore, to be transferred to NARCL. The bad bank will take only stressed assets of Rs 500 crore or more. Bad loans of about Rs 3 lakh crore fulfill this condition.
Financial Services Secretary Debashish Panda said there would be a contingent liability on the government because of the guarantee, but there does not appear to be any immediate financial need at this time.