What is Bad Bank Concept?

RBI is now preparing to bring a bad bank concept to deal with NPA. Strong discussions are being held about this. That is why today we are telling you all the important things related to Bad Bank Concept.


There has been a lot of discussion about the Bad Bank for the last few days. There is a question in everyone’s mind about this, why is the name of the bank called Bad Bank? Can it be good too? When we talked to bank experts to know similar questions, they told that Bad Bank is not a bank. Rather it is an asset reconstruction company (ARC). Yes, the bad debts of banks will be transferred to this company. With this, banks will be able to give loans to more people easily and with this the economic growth of the country will pick up.

Firstly know the Bad Bank Concept

RBI Governor Shaktikanta Das said recently that there is a matter of strictness regarding the rules of NBFCs i.e. non-bank financial companies. All this has been said about the NPA. Due to increase in NPAs, these companies have no more money. In such situation, these companies are not able to give further loans and many have come to the verge of drowning.

That is why RBI is now talking about bad bank concept or idea. By Bad Bank, this means that all the banks that have had their bad debts will be shifted to their bank. In such a situation, the solution to the biggest problem of these banks will be found. Therefore banks will be able to give loans to more people.

What is NPA?

In easy words, when a person or an institution does not take money from a bank or return it, then that loan account would be closed. After this, recovery is done under its rules. In most cases this recovery is not possible or even happens, then as a result, the money of banks is drowned and the bank goes into losses.

According to RBI rules, the property from which the bank is not receiving any income is called NPAs or submerged amount in common language. Talking about RBI rules, if there is no income from any property for 180 days then it is called as NPA.
However, the period of declaration of NPA in foreign countries is 45 to 90 days.

Due to this many times banks reach the verge of closure and customers get their money stuck. When the customers needed the money, they couldn’t get the money on time.

The same thing happened with PMC, the bank had given a loan of more than 4 thousand crore rupees to a real state company named HDIL, which later went bankrupt itself. PMC also does not follow all the rules of RBI to disburse the loans.

Does Bad Banks exists in other Country

Many such banks are already working worldwide. Bad banks have been working in France, Germany, Spain, Portugal for many years. The main job of these banks is to convert bad assets into good assets.

What will be the effect on the common man due to Bad Bank Concept

Referring to the Indian Bank Association last year, ex SBI chairman Rajnish Kumar had said that these are initial thoughts at the IBA level. He told that this is the right time when a structure can be created like a bad bank.

The idea of ​​a bad bank can work because the existing NPAs and provisions of banks are very high. There has been a long-standing conversation between policy makers in India about creating a bad bank.

According to media reports, initially the central government will invest money in it, that means the debt of banks on a large scale will be cleared. In such a situation, privatization of public sector banks will be easy.

Once the NPA is clear, these government banks will be able to give more and more loans to ordinary customers and businessmen. Therefore, the matter of banks not giving loans will be over.

Do the Bad banks function like ordinary banks?

No, these Bad Banks will not be like ordinary banks. Rather, banks will contact them. Money will not be transacted through these banks.

Effect on the deposit money of the common man?

Neither the common customer can deposit money in this bank nor these banks have anything to do with the common people. It will work as a company, not a bank.

Is there any Organization to deal with NPA

The companies to which NPAs are currently sold in the country are called Asset Reconstruction Company (ARC). These companies recover submerged debt. If the recovery becomes more, then it also shares the money with the bank. For this, the rules of RBI are first. However, the rules for Bad Bank are expected to be released soon.

I hope that you all liked the article about the bad bank concept in India.

Read also the below article

How to earn more money from PPF

5 Lessons Learnt from the Corona Virus tragedy will always be remembered

How to earn money from Google Pay | How to get free money in Google Pay

Leave a Comment