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National Asset Reconstruction Company Limited (NARCL) has received a license from the Reserve Bank of India (RBI), enabling it to start operations as a so-called bad bank, an entity formed to take over and dispose of the identified stressed assets worth Rs 2 lakh crore of commercial banks. IBA has been entrusted with setting up of the bad bank, for which the association has put in place a preliminary board. NARCL will acquire fully provisioned stressed assets by making an offer to the lead bank in a consortium of lenders; once the offer is accepted, NARCL will engage with India Debt Resolution Company Ltd. (IDRCL) for management and resolution of the stressed assets. NARCL will acquire stressed assets of about Rs 2 lakh crore in a phased manner. The stressed assets will be acquired through a 15 percent upfront cash payment and 85 percent in the form of security receipts. On September 16 2021, the cabinet cleared the proposal to provide a government guarantee worth Rs 30,600 crore to security receipts issued by NARCL. The difference between the face value of the stressed asset from the realised value from the sale or liquidation of assets represent the guarantee offered by the government. The guarantee will be valid for a period of five years. The transfer of 38 stressed accounts will happen in a phased manner, with banks agreeing to transfer 15 NPA accounts worth Rs 50,000 crore in the first phase by March 2022 (which could not be completed)
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