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Cabinet approves ₹ 30,600 crore government guarantee for bad banks

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Cabinet approves proposal for government guarantee for ‘bad banks’. (file photo)

New Delhi:

The cabinet has approved a central government guarantee of Rs 30,600 crore to support the security receipts issued by the National Asset Reconstruction Company Limited for the acquisition of Stressed Loan Assets of public sector banks. This guarantee will be given for five years.

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The cabinet has taken an important decision to solve the problem of Stressed Loan Assets of about 2 lakh crores of public sector banks. It has been decided that security receipts issued by the National Asset Reconstruction Company Limited, formed for the acquisition of these Stressed Loan Assets, will be given a central government guarantee of Rs 30,600 crore. National Asset Reconstruction Company has been formed to solve the problem of bad loans by banks.

Finance Minister Nirmala Sitharaman had announced the formation of a National Asset Reconstruction Company Limited in this year’s budget to solve the problem of Stressed Loan Assets of public sector banks. It may soon get the approval of RBI.

Today 16 public sector banks of the country have stressed assets of up to 2 lakh crores. Through the National Asset Reconstruction Company Limited, now the exercise is to solve the problem of stressed assets. At present, the Government of India has announced to give guarantee for 5 years. Now the challenge before the public sector banks will be to solve the problem of stressed assets within the next 5 years.

The proposed bad bank i.e. NARCL will pay 15 percent of the agreed value for the loan in cash while the remaining 85 percent will be in the form of security receipts guaranteed by the government.

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