To Succeed, The Bad Bank Must Itself Be Good

Context: State supported bad bank is a good idea, but it needs to go a long mile for the vision to be realised.

National Asset Reconstruction Company Limited (NARCL): The mechanism offers a bad bank (government-floated asset reconstruction company) with government guarantee for bonds it floats to pay banks while taking over NPAs.

Steps needs to be taken by Government for success Bad Bank

• Tribunal vacancies need to be filled: So as to fasten resolution processes.
• Focus on capacity building: Personnel of bad bank have to be above par so that they can do a better job in finding takers for troubled loans.
• Coordination with IBC structure: It must be able to access the services of good resolution professionals who are already assisting the IBC process.
• Purpose bound: Government has to ensure that a bad bank, once created, should not go on forever. It must be terminated after its successful completion of purpose, that is cleansing of NPAs.
• Government must change the way of running financial institutions: Political-bureaucratic interference in economic decision making such as passing of large loans shall end.

Conclusion: In long term, government shall go for privatisation or merging most public sector financial institutions and retain control over just a few which can perform the role during a situation when national security considerations are underplay.