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DAILY NEWS ANALYSIS

  • 07 February, 2021

  • 5 Min Read

Concept of Bad Bank as Proposed in the Budget

Finance Minister in her Budget speech revived the idea of a ‘bad bank’ by stating that the Centre proposes to set up an asset reconstruction company to acquire bad loans from banks.

What is a ‘bad bank’?

  • A bad bank is a financial entity set up to buy non-performing assets (NPAs), or bad loans, from banks.
  • The aim of setting up a bad bank is to help ease the burden on banks by taking bad loans off their balance sheets and get them to lend again to customers without constraints.
  • The idea of a bad bank has been tried out in countries such as the United States, Germany, Japan and others in the past.
  • The total size of bad loans decreased to ?9 lakh crore as of March 31, 2020, down significantly from over ?10 lakh crore two years ago.
  • But experts point out that it is mostly due to larger write-offs rather than due to improved recovery of bad loans.
  • Due to the lockdown imposed last year, the proportion of banks’ gross non-performing assets is expected to rise sharply.

Source: TH


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