The Reserve Bank of India (RBI) has approved the licence of the National Asset Reconstruction Company Limited  (NARCL) under section 3 of the SARFAESI Act. The approval has been received from the Department of Regulation of the RBI.

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What is NARCL?

NARCL is a new body that buys bad loans of banks. It has got approval from the Reserve Bank of India. The Reserve Bank has issued the licence to NARCL on Monday. The licence has been issued by RBI under section 3 of the SARFAESI Act.

In the first phase, banks have identified 22 accounts worth about Rs. 90,000 crore bad loans to be transferred to NARCL. In the second phase, 30 accounts worth about Rs 1 lakh crore to be transferred to NARCL. Padma Kumar Nair has been appointed as the CEO. The names of Rajesh Kumar, DP Prajapati, Snehashish Sarkar, have been sealed as manager investment.

Further, the NARCL will now make its own rules for buying property. The NPA accounts taken in 5 years have to be nitpara.

How will the NARCL work?

The lead banks will come forward to NARCL for the sale of NPA. They will ask NARCL about how much it will get. Now, the reserve price will come from NARCL. If the other buyer pays a higher rate, it will be sold and if  not the price will be that of NARCL.  There will be a composition on the floor price of the NARCL. It has to be noted that there is no floor price guarantee right now and so distress sale takes place.

According to a PTI report, last month, the Cabinet cleared a proposal to provide government guarantee worth Rs 30,600 crore to security receipts issued by NARCL.

NARCL will pay up to 15 per cent of the agreed value for the bad loans in cash and the remaining 85 per cent would be government-guaranteed security receipts, as per the PTI report.

It will be 51 per cent owned by PSBs and the remaining by private sector lenders.

Last week, SBI, Union Bank of India, Indian Bank picked up 13.27 per cent stake each in the NARCL, while Punjab National Bank acquired about 12 per cent stake.

The lead bank with an offer in the hand of NARCL will go for a 'Swiss Challenge', wherein other asset reconstruction players will be invited to better the offer made by a chosen bidder for finding a higher valuation of a non-performing asset on sale.