Economics · Banking Sector Reforms and NPA Resolution
Based on the framework of the 'Bad Bank' structure in India consisting of NARCL and IDRCL, what is the mandated mechanism for acquiring stressed assets from commercial banks?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1Upon sale of the asset to NARCL, the RBI automatically refunds the entire cumulative provisioning amount to the bank's P&L account as a cash bonus.
- 2The commercial bank is legally barred from transferring any non-performing asset until it has remained in the 'Doubtful' category for at least 5 years.
- 3NARCL acquires the stressed asset at an agreed valuation, paying 15% of the consideration in cash and the remaining 85% in Security Receipts (SRs) backed by a government guarantee.✓
- 4The bank must convert the entire distressed debt into equity and take over the corporate management prior to asset sale.
Correct answer
NARCL acquires the stressed asset at an agreed valuation, paying 15% of the consideration in cash and the remaining 85% in Security Receipts (SRs) backed by a government guarantee.
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