With reference to Indian economy, the term 'bad bank', frequently ment

With reference to Indian economy, the term ‘bad bank’, frequently mentioned in news, refers to

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an asset reconstruction company

an asset management company

a bank with huge 'nonperforming assets'

a bank that has become insolvent

Answer is Right!

Answer is Wrong!

This question was previously asked in

UPSC CAPF – 2022

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In the context of the Indian economy, the term ‘bad bank’ frequently mentioned in news refers to a proposed or established financial institution specifically designed to take over the bad loans (non-performing assets or NPAs) of other banks, especially public sector banks. This entity is essentially an Asset Reconstruction Company (ARC) that specializes in acquiring stressed assets from banks to resolve them.
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.

In India, the National Asset Reconstruction Company Ltd (NARCL) has been set up as a form of ‘bad bank’ to take over large value stressed assets from commercial banks. An accompanying India Debt Resolution Company Ltd (IDRCL) is intended to manage and dispose of the acquired assets.

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