What is a bad bank concept?

The ‘Bad Bank’ will be a 2 tiered structure. In tier-1, there will be an Asset Reconstruction Company (ARC) backed by the Government which would buy bad loans from banks and issue Security Receipts to the Banks. You can read about the Bad Banks – Idea Proposed by Indian Banking Association (IBA) Due to COVID-19 in the given link.

Toxic assets can be removed from banks books and transferred to Bad Bank which has the sole purpose of aiding the recovery of risky assets. In tier-2, there will be an Asset Management Company (AMC). AMC would be run by public and private bodies which includes banks as well. 

Further readings:

  1. RBI – Reserve Bank of India [UPSC Indian Economy Notes]
  2. Non Performing Assets (NPA) – Reasons, Classification, Impact, and Measures to Control NPA

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