IN November 2021, Finance Minister Nirmala Sitharaman had declared the creation of India's first-ever “Bad Bank”. Now in January 2022, the RBI has finally given the bad bank the green signal. 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 had climbed steeply.
Largely, this was because the RBI wants banks to precisely identify the bad loans and record them in their books of accounts. Thus, there is now no probability of receiving payment of that amount and banks must make provision for the sick days ahead.
Moreover, the 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 recapitalise them to keep them in business. To do this, the government has no option but to use 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 increase in NPAs, talks of establishing a bad bank gained momentum.
This story is from the February 14, 2022 edition of India Legal.
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This story is from the February 14, 2022 edition of India Legal.
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