Security receipts
Also called: SR · Topic: Banking Regulation, NPAs and Financial Stability · NCERT: Beyond NCERT
Meaning
Security receipts (SRs) are instruments issued by an Asset Reconstruction Company (ARC) when it buys bad loans from banks. An ARC does not pay the full price in cash. It pays partly in cash and partly in SRs. Each SR gives its holder a share of whatever the ARC later recovers from those loans. So the selling bank still bears part of the recovery risk. ARCs must hold part of the SRs themselves, which gives them "skin in the game". That means they share the loss if recovery fails.
Example
The National Asset Reconstruction Company Ltd (NARCL), set up in 2021, uses a 15:85 structure. It pays 15% of the agreed price in cash and 85% in SRs. These SRs carry a government guarantee of up to Rs 30,600 crore for 5 years. The guarantee covers any gap between an SR's face value and the amount actually recovered.
Don't confuse with
- Securitisation of standard assets: this turns healthy loans into tradable securities for investors. SRs arise from the sale of stressed or bad loans to an ARC.