March 31, 2023
  • NARCL, an Asset Reconstruction Company (ARC)/bad bank, has acquired its first stressed asset- Jaypee Infratech- from lenders.
  • NARCL/Bad bank is a corporate structure that isolates risky assets held by banks in a separate entity. It was announced in Union Budget 2021-22.
  • NARCL will take over large value NPA accounts (over Rs 500 crore) from banks with total assets to be acquired of around Rs 2 lakh crore.
  • Stressed assets will be acquired through a 15 percent upfront cash payment and 85 percent in form of security receipts (SR).
  • NARCL is incorporated under Companies Act with Public Sector Banks holding a majority stake.
  • It is registered with RBI as an ARC under Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.

Significance of Bad Bank

  • Reduce NPAs of banks, improving financial system stability and efficiency.
  • Improve recoveries and promote competition, as NARCL allows Swiss Challenge to get the best for banks from stressed assets.
  • Opportunities for other ARCs at MSME’s level, as NARCL reconstruct assets only where banks total exposure is more than Rs. 500 crore.
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