Q. With reference to Bad Banks, Consider the following statements:
1. A bad bank is an asset reconstruction company (ARC), involved in management and recovery of bad loans or NPAs of other banks.
2. Sunil Mehta panel on NPA’s (Non-Performing Assets) propose to establish bad banks in India.
Which of the statements given above is/are correct?
Recently, The Union Government has approved a proposal that requires the government to guarantee Security Receipts(SR) issued by National Asset Reconstruction Company Ltd (NARCL) when buying non-performing assets (NPAs) from banks. This will clear the path for the launch of National Asset Reconstruction Company (NARCL). The NARCL is a type of Bad Bank that has to be set up to resolve the problem of bad loans impacting the public sector banks.
About Bad Bank
A bad bank is an asset reconstruction company (ARC), involved in management and recovery of bad loans or NPAs of other banks. (Statement 1 is correct)
Generally, these Banks are initially funded by the government and gradually, banks and other investors start to co-invest in them.
Concept of Bad bank in India
- The idea gained momentum when the RBI held asset quality review (AQR) found several banks showing a healthy balance sheet but have suppressed or hidden bad loans.
- Sunil Mehta panel on NPA’s (Non-Performing Assets) proposed Sashakt India Asset Management company,(a bad bank) for resolving large bad loans in 2018. (Statement 2 is correct)
Source: Union Cabinet clears decks for National Asset Reconstructio Company
