RBI grants licence to NARCL

October 5, 2021

Reserve Bank of India (RBI) granted the licence to the Rs 6,000 crore National Asset Reconstruction Company Ltd. (NARCL).

Key Facts

This move will help in starting operations of the bad bank.
NARCL was incorporated in Mumbai in July 2021 after registration with the Registrar of Companies (RoC).
IBA has been entrusted with the task to set up the bad bank.

Background

Finance Minister Nirmala Sitharaman in Budget 2021-22 had noted that, high level of provisioning of the stressed assets by public sector banks calls to initiate measures to clean up bank books. In that light, she announced to set up as “Asset Reconstruction Company Limited” and “Asset Management Company” to consolidate and take over existing stressed debt. Both was to set up for managing and disposing assets to alternative investment funds.

Proposal for Government’s guarantee

Cabinet had cleared a proposal to provide government guarantee of worth Rs 30,600 crore for security receipts issued by NARCL. NARCL will pay 15% of the agreed value for bad loans in cash while the remaining 85% will be government-guaranteed security receipts. 51% of the value will be owned by PSBs while remaining by private sector lenders.

Stake in NARCL

Recently, SBI, Indian Bank and Union Bank of India picked up 13.27% stake each in the NARCL. Punjab National Bank also acquired about 12% stake.

What is NARCL?

NARCL is a proposed bad bank to take over stressed assets of lenders. Government had planned to create a bad bank to house bad loans of Rs 500 crore and above. It also comprises of an asset reconstruction company (ARC) and an asset management company (AMC) for managing and recovering assets. It was created in collaboration with public and private sector banks.

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