On September 16, Finance Minister Nirmala Sitharaman made the landmark announcement that the Cabinet has sanctioned the formation of a ‘bad bank’, reported The Indian Express. She said: the government guarantee up to Rs 30,600 crore for security receipts issued by the National Asset Reconstruction Company (NARCL).
“The Cabinet has yesterday approved Central Government guarantee up to Rs 30,600 crore to back Security Receipts to be issued by National Asset Reconstruction Company Limited (NARCL),” Sitharaman added.
As per the minister, the ascertained Budget 2021 had clearly displayed the intentions of the government over the establishment of an Asset Reconstruction Company (ARC) and an Asset Management Company to compile the earnings and settle the debt ratio by disposing them to potential buyers for valuation.
In a press statement, Sitharaman averred the backdated details stating the review session of banks’ asset quality in the year 2015. This was done to nullify the fully provisioning bank balance sheets. This in turn revealed a presence of Non-Performing Assets (NPAs) to a greater degree.
Earlier in 2018, only two of the 21 public sector banks in India were able to redeem. However, as per the statistics, the public sector banks witnessed a rise in profits with only two banks facing losses. The minister asserted that “The government came up with a four-R strategy of Recognition, Resolution, Recapitalisation and Reforms.”