Question

Q. The term ‘Bad bank’ is sometimes seen in the news. Which of the following statements best describes/describe this term?

• A. It occurs when a large number of customers of a bank withdraw their deposits.
• B. Working capital for maintenance of Agriculture harvest & marginal farmers
• C. It is an asset reconstruction company that buys non performing assets (NPAs) from commercial banks at a discount and tries to recover them.
• D. None of the above

Answer 1

The correct option is C It is an asset reconstruction company that buys non performing assets (NPAs) from commercial banks at a discount and tries to recover them.

Explanation:

• An Asset Reconstruction Company or Bad bank is a specialized financial institution that buys the NPAs or bad assets from banks and financial institutions so that the latter can clean up their balance sheets.
• In other words, ARCs are in the business of buying bad loans from banks.
• In the Union Budget 2021-22, Finance Minister announced the setting up of Asset Reconstruction Companies in India to take care of NPAs of stressed banks.