Question

Q. With reference to the term ‘Bad Bank’, which of the following statements is/are correct?

Select the correct answer using the code given below:

• A. 1 only
• B. 2 and 3 only
• C. 1 and 3 only
• D. 1, 2 and 3

Answer 1

The correct option is C 1 and 3 only

Explanation:

Statement 1 and 3 are correct: National Asset Reconstruction Company Ltd (NARCL), the name coined for the bad bank announced in the Budget 2021-22, is expected to be operational by 2021. A bad bank refers to a financial institution that takes over the bad assets of lenders and undertakes resolution.

Statement 2 is incorrect: The entity holding significant nonperforming assets will sell these holdings to the bad bank at market price. By transferring such assets to the bad bank, the original institution may clear its balance sheet—although it will still be forced to take write-downs.