National Asset Reconstruction Company (NARC)

Why in news?

• The finance ministry could soon seek the Cabinet's approval for a plan to offer sovereign guarantee on the security receipts (SRs) issued by the NARCL while acquiring bad loans from lenders.
• This is estimated to cost the exchequer Rs 30,600 crore over five years.

About NARC:

• It is an institution to which Banks will undertake  the transfer of stressed assets ,worth about Rs 83,000 crore in the first phase, for resolution.
• NARCL is expected to see the transfer of large stressed assets (of at least Rs 500 crore each) worth Rs 2.25 lakh crore in phases.
• NARCL is expected to acquire stressed assets at net book value by offering 15% of it upfront (in cash), and the rest (85%) in SRs.
• Once the bad loan is resolved, realisation for the relevant bank would be in sync with its SR interest in that asset.
• NARC is also called Bad Bank and stakes in the company will be owned by Banks itself.
• Large lenders or even all public-sector banks (PSBs), except for Punjab & Sind Bank, could pick up stakes in NARCL.
• An asset management company comprising professionals will also be set up within the broader NARCL structure, which will work out the toxic assets and take appropriate decisions, including on selling them off to investors.
• The National Asset Reconstruction Company (NARCL) is likely to be operationalized in a month.

Government’s role:

• The government has backed the setting up of the NARCL, announced in the Budget for FY22, but it wouldn’t put in capital; instead, participating banks would contribute to the equity.
• However, it is set to give guarantee on the SRs to make the bad loan resolution process more viable and attractive.
• Expeditious resolution of bad loans is critical to stirring economic growth through sustained credit push.

Prelims Question

Which of the following statements is/are correct regarding National Asset Reconstruction company:
1.It is an institution to which Banks will undertake  the transfer of stressed assets.
2.The majority shares of NARC will be owned by the central government.
Which among the above statements is/are correct?
(a)1 only
(b)2 only
(c)Both 1 and 2
(d)Neither 1 nor 2

Answer to prelims question