National Asset Reconstruction Company Ltd (NARCL)

• Ten public sector banks transferred Rs 11,617 crore worth of bad loans to the National Asset Reconstruction Company Ltd (NARCL) by November end, the Rajya Sabha was informed recently.

 ABOUT NARCL

• The National Asset Reconstruction Company Limited (NARCL) was established in July 2021.
• It is an asset reconstruction company that has been tasked with taking over and managing the stressed assets of commercial banks.
• NARCL is registered with the RBI as an Asset Reconstruction Company under SARFAESI Act, 2002.
• It was established to clean up the legacy stressed assets with an exposure of Rs 500 crore and above in Indian Banking system.
• Public Sector Banks (PSBs) own 51% of the NARCL.
• Working
  • The NARCL will first purchase bad loans from banks.
  • It will pay 15% of the agreed price in cash and the remaining 85% will be in the form of “Security Receipts”.
  • When the assets are sold, with the help of IDRCL, the commercial banks will be paid back the rest.
  • If the bad bank is unable to sell the bad loan, or has to sell it at a loss, then the government guarantee will be invoked.
• Union government had issued a guarantee worth Rs 30,600 crore to security receipts issued by NARCL.
  • The government guarantee represents the difference between the assets’ face value and the value realized out of the sale or liquidation.
  • The guarantee is for five years.

 TYPES OF STRESSED ASSETS-

• Sub-standard Assets-If borrower fails to repay the installment, interest on principal or principal for 90 days the loan becomes NPA and it is termed as Special Mention Account (SMA).
• If it remains SMA for a period less than or equal to 12 months it is termed as Substandard Assets.
• Doubtful Assets-If the Sub-standard assets remains so for 12 months or more, then it would be termed as Doubtful Asset.
• Loss Assets-If the loan is not repaid even after it remains substandard for more than three years it would be called as loss Asset.
• Written Off Assets-Written off assets are those on which the bank or lender doesn’t count the money borrower owes to it.