Bad Bank is Actually a Good Idea

Abstract

This article demonstrates the effect of bad loans in India which was developed recently by the Indian Finance Minister. Bad banks operate like a concept in the domestic debt sector where the amount of domestic debt is high and even the market has enough scale to bear enough price-discovery and market-making. there was a proposal made to the government, to merge the NPA portfolio with a new establishment known as an Asset Rehabilitation Corporation (ARC), that would purchase the principal of the Non-performing Assets (NPA) portfolio at a book valuation (not market value) and these accounts would be taken over by the new company to manage the portfolio of the new command (which will be established with a capital of Rs 10,000 crore). The government says that it is intervening to mitigate potential damages that the banks could suffer as a result of the provisioning for non-performing assets and recapitalisation that the government (as a majority investor of most PSBs) may be required to invest on. With the forthcoming Union budget’s planning an outpouring of clamour and market demand is being felt to set up a ‘poor bank’ to sweep bad debts.