Bad Bank : Analysis – UPSC GS3

Utility: Direct question can be asked on Bad Bank. Content can be used in question on NPAs, Banking etc.
What are bad banks?
  • A ‘bad bank’ is designated financial institutions that purchase and resolve nonperforming assets (NPAs) from banks and help banks to help clear their balance sheets.
  • National Asset Reconstruction Company Ltd (NARCL), the proposed bad bank for taking over stressed assets of Banks, was announced in the Budget for 2021-22.
Suggestions for Bad Bank to be effective:
  • Bad banks should have a finite tenure: The bad bank should resolve these bad assets within a fixed period of time.
  • Bad banks should have narrow mandate with clearly defined goals and clear resolution strategy to resolve NPAs.
  • NPAs resolution should take place through a market mechanism and not through a multitude of bad banks.
  • ARCs should be allowed to purchase stressed assets from mutual funds, insurance companies, bond investors and ECB lenders.
  • ARC trusts should be allowed to infuse fresh equity in distressed companies, within IBC or outside of it.
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