The above is news from PIB. The following are some relevant po | ECONOMY by VIVEK SINGH

The above is news from PIB. The following are some relevant points.

1) As per the budget promise, Govt. of India has created the much awaited "bad bank" named "National Asset Reconstruction Company Limited (NARCL)". NARCL is "Government Company", "Public Company" and "Unlisted Company". For details regarding types of companies you can refer the book.

2) A bad bank is nothing but an "Asset Reconstruction Company (ARC)" which is owned generally by Government of India (through eight Public Sector Banks). So, NARCL is an ARC owned by Govt. of India while in general ARCs are privately owned. ARCs are regulated by RBI.

3) The NARCL will purchase bad assets (NPAs) from the Banks and NBFCs (Non banking finance Companies) and then will try to recover the money from the NPAs. Actually Banks/NBFCs core expertise is in banking functions like deposit, lending and other offering other financial products rather than RECOVERY. So, the Banks/NBFCs generally sell the NPAs to ARCS and get rid of bad assets and focus on their core expertise.

4) Let us say a Bank/NBFC gave a loan of Rs. 1000 crore and it turned NPA. So, the Banks/NBFCs may sell it to an ARC in Rs. 300 crore and get rid out of the bad asset and will free up this Rs. 300 capital and the Banks/NBFCs balance sheet will look clean. Why an ARC will purchase in Rs. 300 crore?? If the ARC thinks that they can recover Rs. 400 crore from the bad loan/asset then they may purchase. If ultimately the ARCs is able to recover more they will make more profit or otherwise less.

5) "Asset reconstruction" means acquisition by an ARC of any right or interest of any Bank or financial institution (NBFC) in any debt/loan/advance for the purpose of realisation/recovery of such debt.
When a Bank/NBFC gives loan then a right/interest is created in favour of the Bank/NBFC against the assets of the debtor. For example, when a Bank gives loan for a house then a right/interest is created in favour of the bank against that house/property...............and we say that the house/property is the collateral for the home loan.