What is PARA in banking?

PARA means Public Sector Asset Rehabilitation Agency (PARA). It is also known as ‘Bad Bank.’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. You can read about the Non Performing Assets (NPA) – Reasons, Classification, Impact, and Measures to Control NPA in the given link.

The ‘Bad Bank’ will be a 2 tiered structure. In tier-1, there will be an Asset Reconstruction Company (ARC) backed by the Government. In tier-2, there will be an Asset Management Company (AMC).

Further readings:

  1. RBI – Reserve Bank of India [UPSC Indian Economy Notes]
  2. Bad Banks – Idea Proposed by Indian Banking Association (IBA) Due to COVID-19

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