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Bad Bank - Coggle Diagram
Bad Bank
What is bad bank?
It tries to recover as much as NPAs
Not involved in lending and taking deposits
Essentially it is an Asset Reconstruction Company
It functions as a bank but has bad assets to start with
Need in India
Economic recovery since the NPA crisis
Economic recovery due to pandemic-induced slowdown
International precedents against financial stress
Bad bank in China and issues
It sold 70% of the NPLs at inflated prices
Can currently transfer NPAs only to the national or local bad banks
Aftermath of the Asian financial crisis
Failure in China
Broadening of the original mandate and tenure fails the purpose
An incentive to hide bad loans instead of resolving them
Lessons for India
Finite tenure of bad bank
Narrow mandate and clearly defined goals
Diversify the sources of funds for ARC
Resolution of bad loans should be through market mechanism a/c to Narasimham Committee (1998)