BAD BANK IN INDIA — NARCL, IDRCL AND RESOLUTION OF STRESSED ASSETS

BAD BANK IN INDIA — NARCL, IDRCL AND RESOLUTION OF STRESSED ASSETS

1. Meaning of a Bad Bank

• A Bad Bank is a specialised institution created to acquire stressed or non-performing assets from banks and financial institutions.
• Its purpose is to separate difficult loans from the normal banking business so that banks can concentrate on fresh lending, deposit mobilisation and financial intermediation.
• In India, the “Bad Bank” mechanism broadly operates through NARCL and IDRCL. The uploaded material correctly identifies these two institutions as central to the Indian model.

2. Why a Bad Bank Was Needed

• Indian banks accumulated a large stock of legacy stressed assets, particularly after rapid credit expansion to infrastructure and large corporate projects.
• High NPAs weaken bank balance sheets, require provisioning and restrict their capacity to provide new credit.
• The Union Budget 2021–22 therefore announced an Asset Reconstruction Company and an Asset Management Company to consolidate stressed debt and dispose of it for value realisation. (Press Information Bureau)

3. What is an NPA?

• A Non-Performing Asset (NPA) is a loan or advance on which interest or principal remains overdue beyond the period prescribed by RBI.
• In general banking regulation, a loan becomes an NPA when interest or instalment remains overdue for more than 90 days.
• NPAs reduce banks’ income and lock up funds that could otherwise support productive economic activity.

4. National Asset Reconstruction Company Limited

• NARCL — National Asset Reconstruction Company Limited was incorporated in July 2021.
• It is registered with RBI as an Asset Reconstruction Company (ARC).
• Its principal function is to aggregate and acquire large stressed assets from lending institutions for subsequent resolution. (Press Information Bureau)
• Public Sector Banks maintain the majority ownership in NARCL.

5. India Debt Resolution Company Limited