Centre sanctions Rs 30,600 crore Sovereign Guarantee to set up Bad Bank

Nirmala Sitaraman

In a bid to curb the menace of bad loans in the banking system, the Cabinet on Wednesday okayed a Rs 30,600-crore guarantee programme for securities to be issued by the announced ‘bad bank’ for handling of non-performing assets (NPAs) amounting to Rs 2 lakh crore.

The government guarantee mechanism was cleared by the Union cabinet on Wednesday, making way to operationalise the India’s first bad bank in which majority 51 percent stake is held by public sector banks.

The government guarantee will be allowing banks to transfer their non-performing assets (NPAs) to NARCL, which will buy the stressed assets on payment of 15 percent of the amount in cash and the rest at 85 percent in security receipts.

The government has identified Rs 2 lakh crore of NPA in the banking sector to be transferred to the NARCL. As mentioned by the Union Finance minister, centre would be taking up fully-provided bad assets worth Rs 90,000 crore, in the first phase.

On Wednesday, Finance Minister Nirmala Sitharaman shared the details of the latest reform initiative taken by the centre in a bid to control NPAs in the banking sector. The minister said that in the last six financial years, banks have already recovered Rs 5,01,479 crore. Of this, Rs 3.1 lakh crore has been recovered since March 2018.

During the 2021-22 Union Budget speech, Union Finance Minister announced the setting up of a ‘bad bank’, including an asset reconstruction company and asset management company to take over the existing stressed debt of banks.

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