It is believed that by June, Bad Bank will start its work. This is good news for the Indian banking sector.
The ARC told the Reserve Bank that the defaulting promoter should also be allowed to buyback.
While presenting the budget on February 1, 2021, Finance Minister Nirmala Sitharaman had announced the formation of a bad bank. Bad bank itself is called ARC or Asset Reconstruction Company. It is believed that by June, Bad Bank will start its work. This is good news for the Indian banking sector as ARC buys banks’ bad loans and recovers in its own way. Due to selling bad bank, the balance sheet of the banks gets cleaned and for that it is easy to distribute loans and do business afresh.
According to a report published in the Times of India, the ARC has asked the Reserve Bank to allow defaulting promoters to buyback. Apart from this, securities bonds will also be issued by ARC. It has also demanded permission to buy HNI (High Networth Individual) and corporate. After the introduction of the IBC 2016 code, the role of bad bank has decreased significantly. Because in this the business of the defaulter bank is sold to the new promoter. There is a special rule in the Insolvency Act that the first promoter will not buyback his company again at a lower price. On the other hand, in the law SARFAESI Act about ARC, the promoter or shareholder has been given the right to buyback. There is a difference of opinion about this matter at the moment.
It will be easy to collect NPA
Indian Bank’s Association (IBA) Chief Executive Officer (CEO) Sunil Mehta said that the new entity is being formed with the help of public and private sector banks. He said, “Various works are going on in this regard and we hope that it should be operational next month.” The biggest advantage of NARCL (National Asset Reconstruction Company Ltd) will be the aggregation of identified NPAs (non-performing assets). There are many complexities faced in the solution. ”
Maximum recovery will be attempted
Mehta said that NARCL will take the bad loans of lenders at this time and will try to get the maximum amount from the sale of NPAs. Finance Minister Nirmala Sitharaman had announced in the General Budget of 2021-22 that the books of banks need to be cleared immediately. He said that an asset reconstruction and management company would be set up to deal with the problems of stuck debts of banks, while the framework of the National Company Law Tribunal (NCLT) would be strengthened.
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