What are bad banks?
Jan 21, 01:01

Some context first: bad loans, or non-performing assets (NPAs), constantly worry Indian banks. The accumulation of loans that borrowers fail to repay calls for higher provisions, eroding their profitability. Banks now have around 7.5 percent GNPAs. This chunk is projected to double this year due to Covid. Solution? Some experts suggested creation of a ‘bad bank' to park the bad loans of all banks. A bad bank has benefits—it focusses on resolution while banks can chase fresh lending. But clarity is needed on two counts: one, the price at which banks transfer loans to a bad bank and two, the source of the sizeable initial capital required. The idea is so far on paper.

Bad Bank