Finance Minister Nirmala Sitharaman has said in recent interaction with the press that the proposed bad bank announced in the budget will likely be guaranteed by the Central Government (CG), while the capital will have to be provided by lenders themselves.
Though she did not provide details of likely structure or the capital required for the new entity but said the non-performing assets (NPAs) in the banking system are a result of legacy issues of mismanagement in the past.
Estimates are that the CG’s proposed Asset Reconstruction Firm (ARC) would require a capital infusion of a minimum of Rs 15,000 crore as bad loans amounting to between Rs 2 lakh crore and Rs 3 lakh crore may be transferred to this ARC.
However, till date the CG has not allotted any funds for this new firm, expectations are that public sector banks can be requested to speculate. Sitharaman additionally stated that the CG will work with the Reserve Bank of India (RBI) for execution of the financial institution privatisation plan introduced within the funds.
“The details are being worked out. I have made the announcement, but we are working together with the RBI,” she stated, when requested concerning the proposal.