Bad Bank
Bad Bank to be operational in January
Operational from January
The bad bank provides dress up the balance sheet of the banking industry. They are set to start their
business from the 2nd week of January.
What is Bad Bank?
A bad bank is a bank that buys the bad loans of another financial institution.
It is created to help banks clear their balance sheets by transferring their bad loans.
Banks can focus on their core business of taking deposits and lending money.
Set-Up
India's bad bank is beginning to take shape. The government recently set up the IDRCL (India Debt
Resolution Company Ltd), an AMC (Asset Management Company) that will work in tandem with
NARCL (National Asset Reconstruction Company) to clean up bad loans.
Is bad Bank Good?
Bad banks would also give an impetus to India's economic growth.
Banks with clean balance sheets can mobilize fresh capital from the market.
It improves banks' credit growth and leads to jumps in profitability.
It helps banks encumbered with high NPAs to get rid of toxic assets.
ARC (Asset Reconstruction Company)
An ARC is a specialized financial institution that purchases NPAs from banks. They take special
measures to recover money from bad assets. A bank simply transfers its NPAs to a bad bank, while a
bad bank sells NPAs to ARC at discount. They take special measures to recover money from the bad
asset.
Keep it up ma'am
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