Mentors Comment:

• The idea of forming a ‘bad bank’ in India was initially floated in 2017 when the Economic Survey suggested setting up a Public Sector Asset Rehabilitation Agency (PARA). Along with it, RBI floated the idea of PAMCs and NAMCs on the lines of Bad Banks. Therefore, it’s an important topic, given the challenge of NPA in our banking sector.
• In the intro, discuss the challenges of NPA facing banking sector in India.
• The first part of the answer will discuss the bad bank and its salient features and how it is supposed to work.
• Then discuss how it will be beneficial to commercial PSBs and what the challenges that it will face are.
• Provide various suggestions that can help for a better functioning of bad banks and banking sector overall. One important thing to remember is that bad bank is not the ultimate step for NPA challenge. It’s one of many steps and preferably the last step in that direction. The most important step that govt. needs to take is better regulation, monitoring and functioning of PSBs, capital infusion and structural reforms in economy to tackle NPA problem.