Amid the ongoing economic crisis, the Union Finance Minister Nirmala Sitharaman a few days ago announced the setting up of a ‘bad bank’, which the PM Modi-led Centre government had earlier proposed in its 2021-22 Union budget. 

The idea of “ bad bank” which was mooted by the Finance Minister Nirmala Sitharaman in the Union Budget of 2021-2022 is getting its lease of life.  The National Asset Reconstruction Company is the entity that has the task to make India’s banking sector, saddled with NPAs, healthy. FM Sitharaman on Thursday made it clear that the cabinet has approved the government’s guarantee up to Rs 30,600 for securities receipts.

With Union Finance Minister announcing a provision of Rs30,600 crore in guarantees to NARCL to buy bad loans from banks, Bad Bank will be pivotal factor in ensuring banks’ balance sheets are in good shape, say experts.

The ministry stated that NARCL proposes to buy about Rs2 lakh cr worth stressed assets in a phased manner within extant regulations of RBI.

The idea of “ bad bank” which was mooted by the Finance Minister Nirmala Sitharaman in the Union Budget of 2021-2022 is getting its lease of life.  The National Asset Reconstruction Company is the entity that has the task to make India’s banking sector, saddled with NPAs, healthy. FM Sitharaman on Thursday made it clear that the cabinet has approved the government’s guarantee up to Rs 30,600 for securities receipts. 

Bad banks are established to take on the bad loans of underperforming banks, enabling them to come out of the financial rut. In papers, the theory works seamlessly. The original bank gets to start afresh with a clean slate. It has a neat balance sheet, and can raise more funds as investor confidence is regained.

Sitharaman said that the government has approved a proposal to provide government guarantee of Rs 30,600 crore for security receipts issued by National Asset Reconstruction Company (NARCL) under the resolution of bad loans.

Sitharaman said that the government has cleared the proposal to provide Rs 30,600 crore government guarantee for security receipts issued by the National Asset Reconstruction Company (NARCL) as part of resolution of bad loans. 

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