NARCL's federal guarantee comes through after delay
government has finally renewed its federal guarantee to National Asset Reconstruction Company (NARCL), making it easier for the entity to acquire bad loans from lenders. The approval of the guarantee, which had expired last fiscal, means state-backed NARCL can finally take over bad debt from banks, starting with Delhi-based engineering, procurement and construction (EPC) company SPML Infrastructure. This deal could be signed as early as next week, people familiar with the process said.
«The guarantee has been approved by the department of financial services (DFS) earlier this week. It is now expected that NARCL will complete the take over of SPML debt by next week, the first takeover by the bad bank in more than three months,» said a person aware of the process. The government has committed a total of ₹30,600 crore as guaranatee to NARCL in 2021 which allows the NARCL to acquire multiple accounts.
The guarantee, valid for five years, is to be invoked by banks in case of resolution or liquidation of the bad loan. It will cover the shortfall between the face value of security receipts issued and actual realisation from the account when NARCL finds a buyer. However, since the government budgetary allocations expire at the end of the fiscal in March, this blanket guarantee also expired and had to be renewed.
It has now been finally renewed after more than three months of delay. Without the guarantee, the NARCL could not complete the deals, some of which have been pending since July last year. «This was a serious bottleneck in completing these transactions.
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