Commenting on the cabinet's decision announced by the Finance Minister today to set up a National Asset Reconstruction Company Limited, Uday Shankar, President, FICCI stated that this is a landmark development and signifies the continuation of the reforms process in the banking sector of the country. The government has over the last few years adopted a well thought out strategy to address the challenges facing the banking sector on account of NPAs and with the setting up of the NARCL this process will get a major boost. Amongst the notable features attached to the setting up of NARCL, two areas stand out in particular. First, is the backstop provided by the Government on the Securitized Receipts that will be issued to the Banks by NARCL. This will ensure that a secondary market gets developed for such Securitized Receipts and banks will be able to trade the same. Second, there is an inbuild incentive structure within the overall framework that will drive both banks and NARCL to ensure resolution of the bad loans within a period of 5 years. Such elements have been missing in the functioning of the existing ARCs and hence we feel that large assets that have hitherto been left unaddressed will see resolution going ahead. The fact that banks have already done the aggregation of the bad loans that need to be moved to the NARCL in the first tranche as soon as the entity is set up also shows the preparedness of the banking sector players, he noted.

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