Bad Bank, do we need it.
The Pandemic has been devasting for the whole world and it has affected badly to almost all sectors. The banking industry is one of the organisations which is still struggling and looking for stable position once again after the pandemic. The COVID-19 has made most of us economically challenged too. The borrowers were unable to pay the dues amount to bank and because of that, there has been surged in the NPA (Non- Performing Asset). The SARFAESI Act 2002 u/s Section 2(1) (o) explains about non-performing asset (NPA). Non-performing asset means an asset or account of a borrower, which has been classified by a bank or financial institution as sub-standard (doubtful or loss asset). However, a loan can be classified as sub-standard, doubtful or loss asset if the debtor has not paid its interest within 90 (ninety) days from the due date. The account which has been declared as NPA is often termed as bad loans.
Bad bank is nothing but an asset reconstruction company which takes over the bad loans from the commercial bank.
In past US base Mellon Bank has created first bad Bank and later other countries have conceptualized it and formed bad bank in their countries.
The concept behind the establishment of band bank is to clean the balance sheets of banks in India and to help the economy on credit growth to boost investment.
The Indian Banking Association has also proposed for the creation of bad bank and this proposal came during pandemic, and same has been endorsed in budget session by the finance minister.
In India there has been asset reconstruction companies so forming one more kind of ARC ( Asset Reconstruction Company) will serve some other purpose.
Few of the points which is a prime concern for creation of bad bank is funding, structural set up, ownership of the bad bank.One of the basic questions arises is that after creation of bad bank whether the regular bank may be little irresponsible and may not be taking onus while disbursing the loan. Bad bank will be beneficial for India or not, it will solely depend once the road map will be ready and then we will be in better position to adjudicate.
Prabhakar Nath Rai
Advocate
Patna High Court