Page 36 - Banking Finance August 2021

ARTICLE

BAD BANK

(New strategy for NPA
Management)

B ad bank conveys the impression that it will to cover the losses. When the Bad bank comes into the

function as a Bank but has bad assets to start with.
picture to help them free up to start lending.
Technically, a Bad Bank is an asset reconstruction
company (ARC) or an asset management
company that takes over the bad loans of commercial Banks, Significance of Bad Bank
Y Bad Bank will seek to provide financial stability in the
manages them and finally recovers the money over a period banking sector. It will hold problem loans for public
of time. The Bad bank is not involved in lending and taking
sector banks which can then be sold on to investors at
deposits, but helps commercial banks clean up their balance a reduced price.
sheets and resolve bad loans.
Y The Bad Bank does not involve itself in lending and
The takeover of bad loans is normally below the book value taking deposits, but it helps to make commercial banks
of the loan and the Bad bank tries to recover as much as clear their balance sheets and resolve bad loans.
possible subsequently. Banks drive the nation's economy; Y The process of taking over bad loans is generally below
however many times the borrowers find it difficult to service the book value of the loan
their loans. It requires the lenders to set aside the capital
Y Bad Bank tries to recover as much as possible from
those bad loans
About the author Y Mellon Bank based in the USA was the first one in this

Pravindra Kumar field. It is referred to as the first Bad Bank in 1988.
Senior Manager - Faculty Y A Bad Bank aids a bank to segregate its good assets
Staff Training Centre from the bad ones which make it easier to raise capital
Union Bank of India through equity or debt.
Kolkata

36 | 2021 | AUGUST | BANKING FINANCE