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Cabinet Approves Guarantee of upto Rs 30600 Crore to back Security Receipts to be issued by NARCL

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Cabinet Approves Guarantee Of Up To Rs 30600 CroreAs part of resolution of bad loans, on September 16, 2021, the Union Cabinet approved a government guarantee of up to Rs 30600 crore to back Security Receipts (SRs) for 5 years that will be issued by National Asset Reconstruction Company (NARCL). The information for the same was provided by Union Minister Nirmala Sitharaman, Ministry of Finance while briefing media in New Delhi.

What is NARCL?

It has been incorporated under the Companies Act, 2013 and has applied to the Reserve Bank of India for license as an Asset Reconstruction Company (ARC). It is basically a government backed bad bank in the name of ARC.

  • In this, Public Sector banks (PSBs) will hold 51% stake, while FIs (Financial Institutions) or debt management companies will hold 49%.

What will NARCL do?

It will pick up bad loans above a certain threshold from banks and in turn provide government guaranteed SRs to banks as it takes on Non-Performing Assets (NPAs) from their books. NARCL will lend these bad loans to prospective buyers of distressed debt. It will be responsible for valuing bad loans to determine at what price they would be sold.

  • It will acquire stressed assets of about 2 Lakh crore in phases through 15% Cash and 85% in SRs. Of this Rs 90,000 crore will be transferred in the first phase.
  • The above Rs 30,600 crore will be utilized towards such SRs.
  • All bad loans brought to the NARCL will have to be resolved within 5 years.

Need for NARCL:

Though there exist 28 ARCs but they all cater to the stressed assets especially for smaller value loans. For large value NPAs, an alternative was required. That is why it has been set up.

What is India Debt Resolution Company Ltd?

Along with NARCL, the government will also set up the India Debt Resolution Company Ltd (IDRCL). The IDRCL is a service company or an operational entity, which will manage assets and loop in market professionals and turnaround experts.

  • PSBs and Public FIs will hold a maximum of 49% stake and the rest will be with private sector lenders.
  • Banks’ gross non-performing assets (GNPAs) are likely to exceed ₹10 lakh crore by March 2022, according to a recent Assocham-Crisil joint study.
  • NPAs are expected to rise to 8.5-9% by March 2022.Existing level of NPAs in banks – 9.54% – Public sector bank; 4.78% in Private sector bank; 2.43% in Foreign banks; 7.48% – Scheduled commercial bank.

Key Points:

i.In 2015, an asset quality review of banks had happened which revealed a high incidence of Non-Performing Assets (NPAs).

ii.In 2018, just two out of 21 public sector banks were profitable. But in 2021, only two banks reported losses.

iii.The Central Government has 4R strategy for the banking sector viz. recognition, resolution, recapitalisation and reforms.


In 2020, Indian Banks’ Association (IBA) proposed to create a bad bank for non-performing assets (NPAs). Following this, the finance minister in the 2021-22 Union Budget proposed the setting up of an ARC, along with an Asset Management Company (AMC), to take over the stressed debt of banks.

Recent Related News:

i.President of India Ram Nath Kovind approved the ‘Government of India (Allocation of Business) Three Hundred and Sixty First Amendment Rules, 2021’, which brings the ‘Department of Public Enterprises (Lok Udyam Vibhag)’ which was part of the Ministry of Heavy Industries & Public Enterprises under the Ministry of Finance.

ii.The Ministry of Finance retained the Interest Rate of Small Savings Scheme for the 2nd quarter(Q2) for the Financial Year 2021-22 (FY22) same as Q1 FY22 due to COVID-19.

About Ministry of Finance:

Nirmala Sitharaman Constituency– Karnataka
Ministers of State (MoS) – Dr Bhagwat Kishanrao Karad, and Pankaj Chaudhary