Will ‘Bad Bank' Craft Good Banks?
Indian Economy & Market|October 2021
Finance Minister, Nirmala Sitharaman has, at last acted upon one of her many announcements during the 2021 Budget presentation, by declaring the creation of India’s first-ever ‘Bad Bank. It will acquire all the NPAs of a bank at a price that is below their book price. It then will work to recuperate and turn around the assets by way of expert management, sale, or restructuring. How effective would be bad bank to solve the mega problem of NPAs? Shivanand Pandit answers this big question.
Shivanand Pandit

Moving forward with one of her main statements made during the 2021 Budget presentation, the Finance Minister, Nirmala Sitharaman has declared the creation of India’s first-ever ‘Bad Bank.’ She said the National Asset Reconstruction Company Limited (NARCL) has already been incorporated under the Companies Act and it will procure strained assets worth approximately Rs.2 lakh crore from different commercial banks in various stages. India Debt Resolution Company Limited (IDRCL), another establishment that has also been founded will attempt to dispose of the strained assets in the market. The NARCL-IDRCL configuration is the novel bad bank and to make it a reality the government has allowed the utilization of Rs 30,600 crore to be employed as a guarantee.

Many banks had experienced a progressive increase in their loans’ portfolio since the international financial disaster of 2008-2009. In India, since 2016, the level of non-performing assets (NPAs) or bad loans has climbed terrifyingly. Largely this was because the Reserve Bank of India wanting banks to precisely identify the bad loans and record them in their books of accounts. Total NPAs of Indian public sector banks stood at Rs.6.17 trillion in the financial year 2020-2021. Thus, there is now no probability of receiving payment of that amount and banks must make provision for the sick days ahead.

Moreover, the greatest troublesome fact is that a vast share of NPAs is with the public sector banks (PSBs), which are managed by the government. The government must recapitalize them to keep them in the business. To do this the government has no option besides using the taxpayers’ money to improve the financial health of PSBs so that they can carry out the function of advancing and financing economic activity. Therefore, due to the high-pitched increase in NPAs, talks of establishing a ‘bad bank’ have gained momentum.

What is ‘Bad Bank’?

Continue reading your story on the app

Continue reading your story in the magazine

MORE STORIES FROM INDIAN ECONOMY & MARKETView All

Some Unfortunate Truths About Investing

Importance Of Investing

2 mins read
Indian Economy & Market
November 2021

“We've a Lot of Surprises in Store for Investors”

FACE TO FACE DISCUSSION

9 mins read
Indian Economy & Market
November 2021

Raghav Productivity Enhancers Ltd. World's Largest Manufacturer of Silica Ramming Mass

“We aim to be a futuristic company maintaining the global player tag that we have”

8 mins read
Indian Economy & Market
November 2021

It's True, Globalism is anti-democratic

Globalist elites don’t trust you to make the right choice

5 mins read
Indian Economy & Market
November 2021

Rich or Poor

Poverty or Wealth Is A State of Mind.

3 mins read
Indian Economy & Market
November 2021

5 Glittering Stocks for Samvat 2078

Samvat 2077 has been exceptionally well for the equity market. However, Samvat 2078 will be little subdued but these five stocks will add spark to your portfolio.

9 mins read
Indian Economy & Market
November 2021

Will ‘Bad Bank' Craft Good Banks?

Finance Minister, Nirmala Sitharaman has, at last acted upon one of her many announcements during the 2021 Budget presentation, by declaring the creation of India’s first-ever ‘Bad Bank. It will acquire all the NPAs of a bank at a price that is below their book price. It then will work to recuperate and turn around the assets by way of expert management, sale, or restructuring. How effective would be bad bank to solve the mega problem of NPAs? Shivanand Pandit answers this big question.

5 mins read
Indian Economy & Market
October 2021

“GVFL has been at the forefront of ‘Atmanirbhar Bharat' long before the word was coined”

There are a lot of disruptions happening in the entire segment of the economy in these critical times. Please elaborate the kind of crises you faced and what has been the impact of Covid and lockdown?

5 mins read
Indian Economy & Market
October 2021

RAFT MOTORS Revolutionizing the EV Segment

Raft Motors is a new entrant in the Electric Vehicle segment, however, with ever-increasing dealership nodes in major towns, it is fast emerging as one of the industry leaders with innovative products and advanced engineering skills.

9 mins read
Indian Economy & Market
October 2021

KIOCL Limited Despite Lockdown Registered Spectacular Financial Performance

KIOCL Limited, (Previously known as Kudremukh Iron Ore Company Ltd.), a Flagship Company under the Ministry of Steel, was formed in 1976 for mining and beneficiation of low-grade iron ore at Kudremukh, at Chikkamagaluru district of Karnataka. The Company was conferred with Mini Ratna status in 1999. The country’s prestigious Export Oriented Unit (EOU) has its Pelletisation Complex and Pig Iron Complex (Blast Furnace Unit) at Mangalore and engaged in the business of manufacturing high quality Iron Ore Pellets for export and domestic market and supply of foundry grade pig iron in domestic market.

5 mins read
Indian Economy & Market
October 2021