Bad Banks: An Overview
The menace of non-performing assets (NPA) has long crippled the growth of the banking sector in India and has incapacitated from whole-heartedly participating in the economic growth process. The COVID-19 pandemic has further aggravated the position, as a result, the NPAs which had reached below 10% in pre-covid times have again crossed the 10% mark. Seeing the gravity of the situation, Honourable Finance Minister Nirmala Sitharaman, in her budget, announced the setting up of "ASSET RECONSTRUCTION COMPANIES'', to solve the peril of NPAs. But what is a BAD BANK???? Bad Banks and their Structure In simpler words, a bad bank is an asset reconstruction company that engages in buying bad loans (NPAs) from the commercial banks at discount and tries to recover the money from the defaulter by recommending a systematic solution over some time. The Govt has decided that the bad bank structure will consist of two asset reconstruction companies viz., National Asset Reconstructi...