NARCL
BAD BANKS
India’s banks, especially public sector banks (PSBs), have been burdened with a
high level of bad loans for years, primarily due to corporate defaults.
The idea of a "bad bank" was floated to clean up bank balance sheets by
transferring bad loans to a separate entity, which could focus solely on resolving
them.
The proposal for creating a bad bank was officially announced in the Union
Budget 2021–22 by Finance Minister Nirmala Sitharaman.
It was formally incorporated in July 2021 under the Companies Act, 2013.
NARCL is majority-owned by Public Sector Banks (PSBs).Major banks like
State Bank of India (SBI), Punjab National Bank (PNB), and Canara Bank are
stakeholders.
IDRCL, the operating partner, is owned and managed by private sector players
and professionals.
• The Reserve Bank of India is in the process of granting a
licence for the
National Asset Reconstruction Company Limited (NARCL),
following which assets worth ₹90,000 crore , will move to the
NARCL.
• ARCs are in the business of acquiring assets and attempt to
reconstruct these assets over a period of time to find potential
buyers.
• The oldest Asset Reconstruction Company in India (Arcil) is
owned by a clutch of financial institutions including State Bank
of India (SBI), IDBI Bank, ICICI Bank (ICICI), Punjab National
Bank (PNB)
• Previously ARC’s were privately owned , dealt with small
assets and demanded deep discount for loans.
• This new initiative by the Ministry of Finance, RBI and the
central government will pave way to reduce loss due to NPA.
FUNCTIONS
• . Acquisition of Bad Loans
• NARCL acquires bad loans (NPAs) from banks and
financial institutions — especially large NPAs (typically
above ₹500 crore).
• The loans are purchased at a discounted price, based on
an agreed valuation.
• 2. Resolution through IDRCL
• After acquisition, NARCL hands over the assets to the
India Debt Resolution Company Limited (IDRCL), a
private-sector-led entity, for actual resolution and
recovery.
• NARCL owns the bad loans, IDRCL manages them.
• 3. Payment Mechanism
• NARCL pays banks:
– 15% of the value in cash
– 85% via Security Receipts (SRs), which are backed by a sovereign
guarantee of up to ₹30,600 crore provided by the government to boost
credibility and encourage bank participation.
• 4. Focus on Resolution
• IDRCL and NARCL work with professional resolution experts, legal advisors,
and financial advisors to recover money via:
– Sale of assets
– Debt restructuring
– Legal action through NCLT (National Company Law Tribunal)
• Current Status (as of 2024–2025)
• NARCL has started acquiring bad assets from banks.
• Initial set of NPAs worth around ₹2 lakh crore were identified for transfer in phases.
• Resolutions have started, but full success will depend on legal outcomes and market conditions.
BENEFITS
1. Cleans up bad loans from banks
•Banks have given loans that are not being repaid (called
bad loans or NPAs). NARCL takes these bad loans from
banks, so the banks can focus on giving new loans instead
of chasing old ones.
•🔹 2. Government support gives banks confidence
•When NARCL takes bad loans, it gives banks some cash
and the rest as Security Receipts (promises to pay later).
The government guarantees these receipts — this makes
banks feel safer about handing over their bad loans.
• 3. Helps banks lend more
• Once bad loans are removed, banks don’t have to keep
money aside for them anymore.
That means they can use that money to give fresh
loans to businesses and people, helping the economy.
• 🔹 4. Makes banks stronger and more trusted
• With cleaner balance sheets, banks look healthier.
This increases public and investor trust in the banking
system.
• 5. Better handling of bad loans
• Instead of many banks trying to recover the same bad loan
separately, NARCL brings all those loans to one place and handles
recovery in a more focused and expert way.
• 🔹 6. Prepares banks for future growth or sale
• Clean and healthy banks are easier to grow, invest in, or
privatize.
This is especially helpful for public sector banks.