Today, the Finance Minister is expected to announce a government guarantee for a "bad bank"

Finance Minister

Finance Minister

Today at 2 pm., Finance Minister Nirmala Sitharaman will attend a press conference in New Delhi. She is likely to declare a formal government guarantee on the securities receipts that the planned "bad bank" will issue to banks as it takes over non-performing assets from their books, according to Moneycontrol. A bad bank is a financial institution that was established to purchase the bad loans and other illiquid assets of another financial institution.

The proposal to formalise sovereign backing for the securities receipts issued by the National Asset Reconstruction Company Ltd was reportedly approved by the Union Cabinet on September 15. (NARCL). The Cabinet's approval will clear the path for NARCL to become operating.

She had said, "An asset reconstruction company and asset management company would be set up to consolidate and take over the existing stressed debt." The assets will subsequently be managed and sold to alternative investment funds and other possible investors by the bad bank. As per sources, the NARCL would purchase bad loans for 15% cash and the remainder 85% in government-guaranteed security receipts. 

The Indian Banks' Association (IBA) filed an application with the Reserve Bank of India (RBI) in August, seeking permission to establish the Rs 6,000-crore NARCL. It was incorporated in Mumbai last month after being registered with the Registrar of Companies. According to reports, the company has approached the RBI for a business license in the asset restoration sector after raising an initial capital of Rs 100 crore and fulfilling other legal requirements.

Source: Money Control

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