SYLLABUS SECTION: GS III (ECONOMY)
WHY IN THE NEWS?
The National Asset Reconstruction Company Ltd. (NARCL), set up to NPA TAKEOVER large bad loans of more than ₹500 crores from banks, will pick up the first set of such non-performing assets (NPAs) in July.
NATIONAL ASSET RECONSTRUCTION COMPANY LTD. (NARCL)
- It was announce in the Budget for 2021-22.
- NARCL is a special purpose asset reconstruction company for taking over the large value NPA accounts (above Rs 500 crore) from banks.
- NARCL has been incorporate under the Companies Act and has apply to the Reserve Bank of India for a license as an Asset Reconstruction Company (ARC).
- The new entity is being create in collaboration with both public and private sector banks.
- Majority-owned by state-owned banks, the NARCL will be assist by the India Debt Resolution Company Ltd (IDRCL), in turn, is majority-own by private banks, in the resolution process in the form of a Principal-Agent basis.
Difference between NARCL and ARC
- The NARCL will have a public sector character since the idea is moot by the government. The majority ownership is likely to rest with state-owned banks.
- ARCs are in the business of acquiring assets and attempting to reconstruct these assets over a period of time to find potential buyers.
- The securitization and reconstruction of financial assets and enforcement of the security interest act, of 2002 provide the legal basis for the setting up of ARCs in India | NPA TAKEOVER.
- The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, more commonly known by its shorter name SARFAESI Act, is legislation that allows banks and other financial organizations to recover bad loans effectively.
- It can be utilized to tackle the problem of Non-Performing Assets (NPAs) through different procedures. However, this is possible only for secured loans. For unsecured loans, banks should move the court to file a civil case of default.
Need for National Asset Reconstruction Company Ltd
- The total stress in the banking system would be in excess of Rs 15 lakh crore. The banks burdened with stressed assets and limited capital will find it difficult to manage the NPAs. There is also limited capital that the government can provide. This is where the bad bank model would step in and help both the government and banks.
- The existing ARCs also have limitations in terms of capital or funds to buy large assets.
Source: The Hindu