Topic: Government Budgeting.
5. Enumerate the steps taken so far to expedite and enable resolution of NPAs in India. Critically analyse the potential of National Asset Reconstruction Company Ltd (NARCL) as the “Bad Bank” in addressing the issue of NPAs. (250 words)
Difficulty level: Moderate
Reference: The Hindu
Why the question:
The Union Cabinet has cleared a proposal to provide ₹30,600 crore government guarantee for security receipts issued by the National Asset Reconstruction Company (NARCL) as part of resolution of bad loans.
Key Demand of the question:
To write about the attempts at resolving NPA problem and to analyse the potential of proposed bad bank in resolving the crisis.
Directive word:
Analyse – When asked to analyse, you must examine methodically the structure or nature of the topic by separating it into component parts and present them in a summary.
Structure of the answer:
Introduction:
Begin the answer by giving the extent of NPA crisis in India which is expected to exacerbate due to the impact of the pandemic.
Body:
In the first part mention the various steps taken by the government as well as the RBI to address the NPA issue. Insolvency and Bankruptcy Code (IBC), various asset reconstruction companies (ARCs) under Securities and Reconstruction of Financial Assets and Enforcement of Securities Interest (SARFAESI) act, Debts Recovery Tribunals etc.
Next, write about of National Asset Reconstruction Company Ltd (NARCL) as the “Bad Bank”. Its objectives and functions. Mention how the bad bank will help with the problem of NPA. Also, write about limitations of the proposed bad bank.
Conclusion:
Suggest way forward to address the issue of NPA in India
