Government Will Guarantee 85% Payment On Behalf Of Bad Bank, A Total Size Of 30600 Crore.

• The government will guarantee 85% repayment on behalf of Bad Bank National Asset Restructuring Company Limited (NARCL) to facilitate banks to settle large sums of NPAs. 
• The total size of the guarantee will be Rs 30,600 crore. 

The decision was taken at a meeting of the Union Cabinet on Wednesday; Finance Minister Nirmala Sitharaman said. 2 lakh crore NPAs have been identified. In the first phase, NPAs worth Rs 90,000 crore will be transferred to NARCL. After that, it will be settled by India Debt Resolution Company Limited (IDRCL). The two companies are joint ventures between the government and the banks.

There are already 28 asset restructuring companies in the country, but they could only resolve small amounts of NPAs. These ARCs were afraid to settle large sums of NPAs. Now large NPAs will be fixed, and the burden on banks will be reduced. - Nirmala Sitharaman, Minister of Finance

Will cover the difference in the face value of the NPA

Bad banks buy NPAs after valuation. Which is fixed at a discounted price. Suppose NARCL sets a face value of Rs 4,000 crore for an NPA of Rs 10,000 crore. Of this, NRCL will provide 15% of the Rs 600 crore to the bank. The remaining 85%, i.e., Rs 3400 crore, will be given to SR NRCL Bank.

1. There will be no need to use the four thousand crores available guarantee by selling NPAs, as face value has been achieved.

2. Achieved over Rs.4000 crore by selling NPAs.

That rupee will be deposited in the bank. The guarantee will not be used.

3. Less than four thousand crores, i.e., only 3000 crores, were received.

The bank will be given a guarantee of Rs 1,000 crore.

Benefits of banks: The bank will know the minimum amount it will receive against NPAs. Even if the NPA is sold at a lower price, it will make the minimum amount available. 

NRCL: NRCLA will settle large NPAs without fear as it will have to pay only 15 percent of the market value in cash. The remaining amount is to be given as SR. Therefore, the burden will not fall on the NRCL even if there is no recovery.

This guarantee will be in cash after the liquidation of the NPA or liquidation. SR can be bought and sold. It will also increase liquidity in banks.

Source from Divyabhashkar