Nirmala Sitharaman Highlights: Bad Bank is born, to take on Rs 2 lakh cr bad loans; FM OKs Rs 30k cr govt guarantee

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Updated: September 17, 2021 7:38:41 am

Finance Minister Highlights: Finance Minister Nirmala Sitharaman today announced that the government will back guarantees worth Rs 30,600 crore for the National Asset Reconstruction Company, which will take over bad loans worth Rs 2 lakh crore from banks.

Finance Minister liveThe details of non-tax revenue mobilisation and the potential by the ministry/department would also be discussed during the pre-budget meetings.

FM Nirmala Sitharaman Highlights: Finance Minister Nirmala Sitharaman today announced the Union Cabinet’s approval for a government guarantee of Rs 30,600 crore for securities receipts issued by the National Asset Reconstruction Company (NARCL). “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. The Finance Minister, addressing the media, added that guarantees can only be invoked by banks on resolution or liquidation of the said assets. 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. 

 

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Highlights

    18:27 (IST)16 Sep 2021
    Buy large-cap bank stocks

    "NARCL would pay up to 15% of the loan amount as cash and remaining 85% would be paid in the form of government-guaranteed security receipts. These security receipts would be tradable in the secondary markets and would infuse much-needed liquidity in banking system. This bad bank will take over the existing toxic debts of banks and dispose them off to realize value locked in these assets. So, it will definitely improve balance sheet of lead lenders as well as providing some incremental cashflows to them as well. Banking Stocks for instance, SBI, PNB, Union bank of India, Yes bank, Indusind Bank are few beneficiaries and will be on radar. For investors, It is not recommended to immediately buy banking stocks but to wait and time any fresh entry albeit buy quality large-cap banks stocks only right now," said Aprajita Saxena, Research Analyst at Trustline securities.

    18:22 (IST)16 Sep 2021
    How will faster and timely resolution be ensured?

    The GoI guarantee will be valid for five years and the condition precedent for invocation of the guarantee will be resolution or liquidation. Further, to disincentivize delay in resolution, NARCL has to pay a Guarantee fee which increases with the passage of time.

    18:17 (IST)16 Sep 2021
    Incentivising banks

    “The sovereign guarantee provided by the government for NARCL will certainly put in motion the bad banks in India in a big way. Such backing of the government in terms of guaranteeing the security receipts would certain incentivise the banks to deal with bad debt through NARCL route. We will see a flurry of activity in stressed loan space in the near future," said Siddharth Srivastava, Partner, Khaitan & Co.

    18:17 (IST)16 Sep 2021
    What will be NARCL’s strategy for resolution of stressed assets?

    NARCL is intended to resolve stressed loan assets above ₹500 crore each amounting to about ₹ 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 provisionswould be transferred in phase II.

    18:14 (IST)16 Sep 2021
    Credit off-take incoming

    "Since the banks will remove these NPAs from their balance sheets, they can focus on lending activities that can help trigger a fresh round of credit off-take that the economy badly needs. The FM's confirmation that Rs 5 lakh cr has already been recovered during the last 5 years is a positive signal that the burden will not be as high as initially feared. Nirmala Sitaraman's track record as a reformist finance minister has been further reinforced with this NARC announcement," said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

    18:11 (IST)16 Sep 2021
    How will NARCL and IDRCL work?

    The NARCL will acquire assets by making an offer to the lead bank. Once NARCL’s offer is accepted, then, IDRCL will be engaged for management and value addition.

    18:09 (IST)16 Sep 2021
    India Debt Resolution Company set up

    India Debt Resolution Company (IDRCL) is a service company/operational entity which will manage the asset and engage market professionals and turnaround experts. Public Sector Banks (PSBs) and Public FIs will hold a maximum of 49% stake and the rest will be with private-sector lenders.

    18:08 (IST)16 Sep 2021
    What isNational Asset Reconstruction Company Limited (NARCL)? Who has set it up?

    NARCL has been incorporated 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 set up by banks to aggregate and consolidates stressed assets for their subsequent resolution. PSBs will maintain 51% ownership in NARCL.

    18:06 (IST)16 Sep 2021
    Setting up India Debt Resolution Company

    "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," Finance Minister said.  

    17:52 (IST)16 Sep 2021
    Faster resolution on the way

    "The announcement for Rs 30600 crore guarantees to backstop the proposed Security receipt to be issued under The NACRL framework is a significant step that will facilitate the Banks to take speedy decisions and the security provided will positively maintain the strength of Bank balance sheets. In the absence of the guarantee, the banks would have been required to make higher provisions. It is going to create a win-win situation for all stakeholders," said Jyoti Prakash Gadia, Managing Director, Resurgent India. 

    17:46 (IST)16 Sep 2021
    No fiscal outgo for the government

    The government will not face any fiscal outgo for the guarantees it provides to banks, Financial Services Secretary said. 

    17:38 (IST)16 Sep 2021
    Guarantees to be invoked only on resolution

    "Guarantees can only be invoked in case of resolution or liquidation of bad loans," Finance Minister said today.

    17:35 (IST)16 Sep 2021
    Bad bank to take over bad loans worth Rs 2 lakh crore

    Rs 2 lakh crore worth NPA will be sent to the NARCL, of this Rs 90,000 crore will be transferred in the first phase.

    17:34 (IST)16 Sep 2021
    NARCL incorporated

    "NARCL has been incorporated as a company. The license is in the process by RBI and the cabinet approval will also come in due time. Assets to be transferred have also been identified," Financial Services Secretary Debashis Panda said. 

    17:30 (IST)16 Sep 2021
    Government guarantee good for 5 years

    Government guarantees will be valid for up to five years. This will ensure a timely resolution of assets, the finance minister said.

    17:28 (IST)16 Sep 2021
    Banking sector issues addressed

    "In totality, we have addressed issues in the banking sector that were staring us in the face in 2015," the finance minister said.

    17:27 (IST)16 Sep 2021
    NARCL to issue security receipts to banks

    "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. The government approved Rs 30,600 crore for such guarantees yesterday.

    17:25 (IST)16 Sep 2021
    Government to set up India Debt Resolution Company

    "Along with NARCL, the government will also set up an India Debt Resolution company," the finance minister said, today.

    17:22 (IST)16 Sep 2021
    Banks not waiting for government

    Finance Minister said that the public sector banks are not waiting for the government to infuse capital but are raising funds through equity and debt markets. 

    17:20 (IST)16 Sep 2021
    Turning profitable

    "In 2018 2 out of 21 PSB were profitable. In 2020-21, only 2 public sector lenders reported a loss for the full year," Finance Minister said today. 

    17:19 (IST)16 Sep 2021
    Detection time for bad loans at 57 months

    Average lag time of 57 months in the detection of large bad loans, FM said during her press conference today. The Finance Minister said that the bank and RBI have taken various steps to reform the banking sector.

    17:18 (IST)16 Sep 2021
    Reforms for banking sector

    Since 2014, creating the bank board bureau, creating a framework of key performance indicators, and planned mergers are some of the reforms done for the improvement for the banking sector, the Finance Minister said.

    17:15 (IST)16 Sep 2021
    Amount recovered from written off loans

    "Rs 99,000 crore recovered from written-off assets such as Bhushan Steel, Essar Steel," said the Finance Minister today.

    17:14 (IST)16 Sep 2021
    Banks recover more than Rs 5 lakh crore in last six financial years

    In the last six financial years, banks have recovered more than Rs 5 lakh crore, the finance minister said. "Of this Rs 3.1 lakh crore have been recovered since March 2018. Recoveries include written off loans as well," she added.

    17:11 (IST)16 Sep 2021
    Union Cabinet approves govt backed security receipts for bad bank

    The Union Cabinet yesterday approved government backing for security receipts worth Rs 30,600 crore that will be issued by the NARCL or the bad bank.

    17:00 (IST)16 Sep 2021
    Finance Minister to address media soon

    Finance Minister Nirmala Sitharaman will begin addressing the media any minute now. The Finance Minister is expected to announce the setting up of a bad bank.

    16:57 (IST)16 Sep 2021
    Bad Bank based out of Mumbai

    Earlier last month, The Indian Banks’ Association (IBA) moved an application to the Reserve Bank of India (RBI) seeking a licence to set up a Rs 6,000 crore NARCL. NARCL is believed to have been incorporated in July in Mumbai following the registration with the Registrar of Companies (RoC).

    16:55 (IST)16 Sep 2021
    FM to talk of sovereign guarantee on security receipts?

    Reports suggest the finance minister could announce sovereign guarantees on the security receipts (SRs) issued by the NARCL while acquiring bad loans from lenders. 

    16:52 (IST)16 Sep 2021
    How will bad bank pay for loans

    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. The government guarantee would be invoked if there is loss against the threshold value, Sunil Mehta, CEO, Indian Banks’ Association said earlier. 

    16:48 (IST)16 Sep 2021
    Bad bank to take over stressed assets worth about Rs 83,000 crore

    The proposed bad bank is likely to take over stressed assets worth about Rs 83,000 crore in the first phase to the so-called bad bank for resolution. The bad bank or National Asset Reconstruction Company is expected to become operational soon.

    16:34 (IST)16 Sep 2021
    Bank credit growth to pick up

    Brickwork Ratings (BWR) views that measures by the GOI and RBI have always been proactive in enhancing credit growth to support the business cycle across segments. The AA system will enable the much needed improvement in the credit flow based on the borrower’s past track record, especially in the SME segment, with less reliance on the collateral. While the advances to industry continue to grow slowly, the measures of vaccination and unlocking of services will surely assist in its revival with supportive measures from the regulator for this segment as well. The business community also seems to be better prepared to accept the pandemic and resume their business activities, under the ongoing pandemic scenario. Considering the existing asset quality levels, a likely increase is expected over the medium term; however, BWR views that maintaining healthy capitalisation levels shall assist banks in enhancing their appetite for credit risk.

    Brickwork Ratings

    16:26 (IST)16 Sep 2021
    Challenges galore for banking sector

    In the last parliament session, the Union Cabinet cleared changes (Deposit Insurance & Credit Guarantee Corporation Bill 2021) to the deposit insurance laws to provide funds up to Rs 5 lakh to an account holder within 90 days in the event of a bank coming under the moratorium imposed by the RBI. The government has also permitted raising the deposit insurance premium by 20 per cent immediately, and maximum by 50 per cent. 

    16:10 (IST)16 Sep 2021
    Normalcy for PSU banks

    Finance Minister Nirmala Sitharaman had earlier this week had stressed on how the government was able to bring back normalcy with regards to mounting non-performing assets (NPAs) in most of the public sector banks that have been a cause of concern since 2014. “Post 2014, we had witnessed major NPA problems in the PSU banks, it took five to six years to reverse the trend and bring back normalcy in most of the banks. While the banks spent energy in the recovery process, even as trying to grow their businesses,” the Finance Minister said.

    15:56 (IST)16 Sep 2021
    GST council meeting tomorrow

    The GST Council, chaired by Finance Minister Nirmala Sitharaman, will meet on Friday, which among other things may review tax rate of over four-dozen items and extend till December 31, tax concessions on 11 COVID drugs. Also, taxing petrol and diesel under the single national GST tax and a proposal to treat food delivery apps such as Zomato and Swiggy as restaurants and levy a 5 per cent GST tax on supplies made by them would be taken up by the Council at its meeting in Lucknow on September 17.

    15:48 (IST)16 Sep 2021
    Banks look to resolve large assets even as NARCL gets set up

    Banks are continuing with their regular practice of putting up large stressed assets for sale to asset reconstruction companies (ARCs) and other investors even as the process for setting up the National Asset Reconstruction Company (NARCL) has been set in motion. The possibility of quicker and better-yielding resolutions in some assets is the reason behind this, according to bankers and other industry executives.

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    15:41 (IST)16 Sep 2021
    Bank stocks rally ahead of FM press conference

    Bank Nifty hit a fresh all-time high of 37,720 today ahead of Finance Minister's press conference. Bank Nifty index was up 2.2%.

    15:33 (IST)16 Sep 2021
    Announcement on bad bank

    Finance Minister Nirmala Sitharaman is likely to announce the setting up of the bad bank as was proposed by her in the Union Budget earlier this year. 

    15:32 (IST)16 Sep 2021
    Finance Minister address media

    Finance Minister Nirmala Sithraman will address a press conference at 5 PM today, the Finance Ministry said on Twitter earlier today. The ministry has not given any further details.

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