To give a resolution to stressed assets, the formation of the bad bank may help. Rather, it may play a key role in that, according to some experts. Analysts were assuming that the concept will kick off in the union budget and the finance minister did not disappoint them.
The move will help in realizing the stress of the management from recovering the stressed assets. It would bring transparency in the process. It will be the single entity that will derive decision-making as a lender.
It is needless to say that it will reduce the burden on national company law appellate tribunal as well.
What all can a bad bank do?
The bad bank will buy the stressed-out loans of banks owned by states. The volume of such loans is much higher than people think. Estimates say that it is in the magnitude of 4.5 lakh crores.
No wonder, the announcement of setting up a bad bank to deal with a high number of toxic loans was welcomed by everyone; bankers, finance experts, distressed asset managers, and even nclt lawyers Mumbai.
Still, the details are awaited, but it has raised expectations of a reduction in NPA for sure. When thing clears, it will make people further assured about it.
How much capital will be allocated to the new asset reconstruction company? How will be the process? What will be the modus operandi of the bad bank? Answers to such questions are still hidden.
Regardless of its nitty-gritty, the concept will definitely be going to reduce the headache of people handling npa legal matters.
Everyone felt that it is a step in the right direction. Surely it will reduce the time required to resolve NPA.
The establishment of bad banks will expedite the resolution of bad assets. When there will be bad loans taken over, it will enhance the ability of banks to lend to more productive sectors. It will spur growth and take the economy to new heights.
There has been a demand for the creation of a bad bank for many years. In the light of the economic turmoil after the Covid-19 outbreak, the demand was further aggravated. Since the spike in NPA was high, it was expected that the budget will have some announcements about the bad bank. And the government did not disappoint people.
Establishment of Asset Reconstruction Company will take over the existing stressed debt from banks and consolidate them to other potential investors as well as AIF or Alternate Investment Fund.
According to the government, there are plans to establish a holding company where banks can transfer the stressed loans. These loans can be sold at the price determined by the market.
According to the experts in bad debts and NPA, the step of setting up a bad bank will bring down the provisioning pressure. Public sector banks can clean up their books.
Everyone is looking for a better impact of the concept of Bad Bank, despite the fact that the details are still to be revealed. Further information is awaited.