Union Cabinet approves Rs 30,600 cr for 'Bad Bank'

“NARCL will pay up to 15 per cent of the agreed value for the loans in cash and the remaining 85 per cent would be government-guaranteed security receipts,” Finance Minister announced.

In a press briefing, the Finance Minister added that guarantees can only be invoked by banks on resolution or liquidation of the said assets.

The clearance was given by Cabinet on Wednesday, she said.

The NARCL will take up bad loans from lenders worth Rs 2 lakh crore, of which Rs 90,000 crore will be transferred in the first phase.

In 2015, an asset quality review of banks had been conducted, where a high incidence of non-performing assets (NPA) was revealed, she said.

The NARCL will add together NPAs in banks' balance sheets and manage as well as dispose them of professionally, the finance minister said.

NARCL is intended to resolve stressed loan assets above Rs 500 crore each amounting to about Rs 2 lakh crore.

In phase I, fully provisioned assets of about Rs 90,000 crores are expected to be transferred to NARCL, while the remaining assets with lower provision would be transferred in phase II.

"Between 2014 and 2019 and till today, the entire cycle of cleaning public sector banks, removing from them those assets which are NPAs and putting them in a structure that is registered as a company, aggregation can be made and then an ARC would deal with revaluation and making sure that they are finally sold off. We are also setting up an India Debt Resolution Company for the professional management of assets," the Finance Minister said. 

The licence for NARCL is in the works, she added further.

NARCL has been set up under the Companies Act and has applied to the Reserve Bank of India for a license as an Asset Reconstruction Company (ARC).

NARCL has been established by banks to aggregate and consolidate stressed assets for their further resolution.

Public Sector Banks will maintain 51 per cent ownership in NARCL.