The Union Cabinet may soon clear up the proposal to provide government guarantee to security receipts issued by the National Asset Reconstruction Company as part of the resolution of bad loans.
IBA or Indian Banks Association trusted with the prospectus of setting up a bad bank has pegged the Government of India guarantee to be around ₹31,000crore.
The proposed bad bank or National Asset Reconstruction Company will have to pay up to 15 percent of the total agreed value for the loans in terms of cash and the rest 85 percent will be provided by the government of India as per guaranteed security.
The government guarantee will be coming into the hand if there is any loss against the threshold or the agreed value. As per present information, the proposal is made before the Cabinet and its nod is compulsorily required to extend the sovereign guarantee to security receipts issued by the National Asset Reconstruction Company.
Approval from the Cabinet that is expected soon will pave the way for operation of the bad bank announced by the honorable Finance Minister Nirmala Sitharaman in the Budget in the ongoing fiscal year, the sources given hint.
The Finance Minister in the Budget year 2021-22 has announced that the high level of provisioning by public sector banks of their stressed assets calls for measuring and cleaning up the books of the bank.
An Asset Reconstruction Company Limited and Asset Management Company will have to be set up to consolidate and take over the existing stressed debt, she had said in the Budget speech. It will then manage and dispose of the assets to alternate investment funds and other potential investors for eventual value realization, she had said.
Last year, the Indian Banks Association made a proposal for the creation of a bad bank for swift resolution of non-performing assets. The government of India has accepted the proposal and came to the conclusion that to go for asset reconstruction company and asset management company model in this matter. ‘
Meanwhile, state-owned Canara Bank has expressed its intention to be the lead sponsor of National Asset Reconstruction Company with a 12 percent stake. The proposed National Asset Reconstruction Company would be 51 percent owned by PSBs and the remaining by private-sector lenders. National Asset Reconstruction Company will take over-identified bad loans of lenders.
The banks lead with the ability to offer in the hand of National Asset Reconstruction Company will go for a ‘Swiss Challenge’ whereas other asset reconstruction players will be provided an opportunity to make the offer made by a chosen bidder better for finding higher valuation of a nonperforming, on sale of the asset.
The company has picked up those assets that are 100 percent supported by the lenders. Banks have done the identification around 22 bad loans worth ₹89,000crore to be transferred to National Asset Reconstruction Company in the starting phase.
