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Banking Central | Bad Bank is ready; can it make a difference?

The Bad Bank will absorb bad assets from banks but proper execution and asset resolution will be key to make sure the project doesn’t meet the fate of some of the earlier initiatives.

January 31, 2022 / 09:30 AM IST

After much delay, the so-called Bad Bank is finally ready to take off. On 28 January, at a video press conference called at a short notice, State Bank of India (SBI) chairman Dinesh Kumar Khara announced that the project had received all necessary approvals to take off. Around 15 cases worth Rs 50,000 crore will be transferred to the proposed bad bank in this financial year, he said. An estimated Rs 2 lakh crore worth of bad assets are planned to be transferred to the Bad Bank.

A total of 38 accounts with Rs 83,000 crore outstanding in total have been identified for transfer so far but some have been resolved already, Khara added. The dual structure of Bad Bank will be a public-private collaboration with public sector banks having a majority stake in the National Asset Reconstruction Company Ltd (NARCL) while private banks will have a significant stake in India Debt Resolution Company Ltd, he said.

So far so good. But what’s next?

For sure, the Bad Bank’s journey won’t be a smooth one—even with all that government backing and banking sector. There will be two key challenges—valuation and asset resolution.