New Delhi: To address the problems faced by non-performing assets (NPAs) related to bad loans in public sector banks, Finance Minister Nirmala Sitharaman on Thursday announced that the Union Cabinet has approved the country’s first initiative ‘Bad Bank’. has given.
Sitharaman said that the government has approved a proposal to provide government guarantee of Rs 30,600 crore for security receipts issued by National Asset Reconstruction Company (NARCL) under the resolution of bad loans.
The government guarantee will allow banks to transfer their non-performing assets (NPAs) to NARCL.
What is Bad Bank?
A bad bank is a bank set up to buy bad loans and other liquid holdings of another financial institution.
It can help banks clean up their balance sheets by shifting bad loans and focus on its banking and lending activities. The first bad bank was created in 1988 by US-based Mellon Bank to hold its “toxic assets”.
Bad banks have been recognized as institutional and successful in many countries, including the US, Sweden, Finland, Belgium and Indonesia.