New Delhi, Feb 1 (IANS): Amid concerns of rise in non-performing assets in banks due to the pandemic, the government has decided to come up with a bad bank to take over the stressed assets of the lenders.

Presenting the Union Budget for 2021-22, Finance Minister Nirmala Sitharaman said that an Asset Reconstruction Company Limited and Asset Management Company will be set up to consolidate and take over the existing stressed debt.

The ARC and AMC will then manage and dispose of the assets to Alternate Investment Funds and other potential investors for eventual value realisation.

Sitharaman said that the high-level of provisioning by public sector banks of their stressed assets calls for measures to clean up the bank books.

According to the government, the current ARCs and AMCs are not adequate to handle the amount of bad debt. Public sector banks would initially put in capital into the company and the government expects to attract both private investors and banks to pitch in with more capital.

The announcement comes at a time when a Reserve Bank report has said that the gross non-performing assets (GNPA) of scheduled commercial banks (SCB) are likely to increase to 13.5 per cent by September 2021 in the existing scenario.

In case of a severe stress, the ratio may go up to as high as 14.8 per cent, it said.