Bad bank - A solution for NPA's

 Loans offered by banks, which are delayed beyond a specified time due to payment of interest or installment payment, are assumed after a certain time frame that the loan given will not be returned if it is not returned to non-performing assets ( NPA). The higher the level of non-performing assets, the higher the chances of bankruptcies going bankrupt, apart from this, they cannot give sufficient level of credit to newcomers, which hinders the flow of money in the country and hinders the economic development of the country. is .

 According to the recently released data, all the public and private banks in India together with non-performing assets reached 10 lakh crore by the first quarter of 2020, which is a matter of concern for the development of the Indian economy.

 Recently, the Indian Bank Association (IBA) has proposed to the Government and the Reserve Bank of India to set up a bad bank to solve this non-performing asset.

 The bad bank recovers a loan that banks and other financial institutions have declared in their account books as non-performing assets that the bank believes are not going to be returned to them.

 All banks and financial institutions that are after the establishment of a bad bank can deposit their non-performing assets in the bad bank, that is, they can sell, in return, the bad bank will give some value of the total amount of that non-performing asset to the banks and Further, it will work to recover that non-performing asset, after paying the amount to the banks, if they recover more than that amount then it will be the benefit of the bad bank.

 For example, if a bank gives an NPA worth 10 crores to the bad bank and in return, the bad bank is able to recover Rs 9 crores by paying Rs 8 crores to that bank, then it will benefit 1 crore bad bank. Will happen.

 As per the recommendation of the Indian Bank Association, about Rs 10,000 crore is required to start a bed bank, which should be provided by the Government of India.

 Although the concept of bad bank is not new in India. The first idea to establish a bad bank globally came up in 1988 in America. While the idea of ​​setting up a bad bank in India was also given in the Economic Survey in 2017, the idea was to name it Public Sector Assets Rehabilitation Agency (PARA) at that time. Apart from this, RBI Governor Viral Acharya had suggested setting up of an institution like Bad Bank, National Asset Management Company (NAMC), Private Asset Management Company (PAMC).

 After the establishment of bad bank, banks will benefit greatly from this, banks will not see NPA in the balance sheet or will look less, due to which people will have more confidence in banks and people will accumulate more, banks will lose less than before. Stability will come, apart from this banks will be able to focus more on their main activity rather than recovering their old debts.

 But former RBI Governor Raghuram Rajan has called the concept of bad bank as Moral Hazard, that is, any risk which is right in a legal and logical way, but it can cause huge damage to the other party, not just you, like the bank now Without worrying about NPAs, more people will give them that after MP they will take money by putting NPA in Bad Bank, but due to this more loan, there is fear of wasting money of the general public who deposited it in the bank. Was. Apart from this, it is also very difficult to decide whether all banks and financial institutions of the country will put their NPAs in this bad bank or some selected.

 There are some problems, but if these problems are solved, then the bad bank can bring a radical change in the economy of the country because the problem of NPA is very much in the country and it is necessary to solve it. Can do and bring stability to the country's economy.