With reference to Indian economy, the term ‘bad bank’, frequently mentioned in news, refers to
[amp_mcq option1=”an asset reconstruction company” option2=”an asset management company” option3=”a bank with huge ‘nonperforming assets'” option4=”a bank that has become insolvent” correct=”option1″]
This question was previously asked in
UPSC CAPF – 2022
Option A, “an asset reconstruction company,” correctly describes the nature of a ‘bad bank’.
The primary function of a bad bank is to clean up the balance sheets of commercial banks by purchasing their NPAs, allowing the commercial banks to focus on normal banking activities like lending.