Context
In a recent development Union Finance Minister Nirmala Sitharaman has made an announcement that the government is extending a guarantee of Rs 30,600 crore to the National Asset Reconstruction Company Ltd (NARCL) to help clear stressed loans.
Background
Analysis
What is a Bad Bank?
Need for a Bad Bank:
NPAs that banks have:
CRAR is also known as Capital Adequacy Ratio (CAR) measures a bank's financial stability by measuring its available capital as a percentage of its weighted credit risk exposure. The Basel III norms stipulated a capital to risk-weighted assets of 8%.A higher CRAR shows that the bank is better capitalised to handle NPAs.
Working of NARCL-IDRCL:
Concerns involved:
Benefits:
Conclusion:
The 4R strategy of Recognition, Resolution, Recapitalisation and Reform, has positively contributed towards enhancing the performance of Public Sector Banks (PSBs). On these lines, the government made its intention clear to set up an Asset Reconstruction Company (ARC) along with an Asset Management Company (AMC) to take the charge of stressed debts and thereafter dispose of them to buyers for value realisation. The National Asset Reconstruction Company Limited (NARCL) and India Debt Resolution Company Limited (IDRCL)structure will consolidate the fragmented debt across the various lenders so that quicker can be taken for a better value realisation. In long run, the only sustainable solution to the problem of NPAs rests in improving the lending operation by PSBs, because that’s where the problem begins.
Verifying, please be patient.