Bad bank balance sheets will improve and it will be easier for them to get new loans. Through this, the state-owned banks of the country can be freed from NPAs. The most important thing is that no ordinary person can transact in this bank. This will not open your account or you will be able to deposit money. Now you must be wondering what kind of bank these are? Don’t worry, let me tell you what a bad bank is. How did it start and what will be the benefits?
Do you know bad banks?
Bandback is a type of asset restructuring company (ACR). Its job is to take bad loans from banks i.e. non-performing assets (NPAs). Just turning bad assets into good assets. The point is that the bank lends to any person or organization. When a person / entity is unable to repay this loan or it stops paying installments for a long period of time, it is considered as a bad loan or NPA. But, banks never want to keep such bad loans to themselves. In fact, it destroys the bank’s balance sheet. The bank is also unable to give new loans. Bad banks will take this bad loan from the bank.
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What is NPA after all?
According to RBI rules, an asset from which a bank does not make any income is called an NPA. However, a limit of 180 days has been set for this. That is, if the loan is outstanding for more than 180 days, it falls under the category of NPA. At present, the total NPA in the Indian banking system is about 8.5 per cent. The RBI estimates that it could rise to about 12.5 percent by March.
Where did the bad banks come from?
Significantly, bad banks originated in the United States. American banks sank into debt in the 1980’s. In such a situation for the first time the idea of bad bank came. In addition, year after year, bad things have happened in France, Germany, Spain and Portugal.
How and what will be the benefit?
With the advent of bad banks, banks will be largely free from NPAs. That means banks can have two direct benefits. The first is that it will make it easier for banks to make new loans. And you will get new investment opportunities. Besides, the balance sheets of the banks will be clear, in which case if the government has to privatize the banks more, it will be easier.
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