[Solved] With reference to Indian economy, the term 'bad bank' (2024)

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[Solved] With reference to Indian economy, the term 'bad bank'? ›

The correct answer is Asset Reconstruction Company (ARC). Key Points Bad Bank. A Bad Bank houses Bad loans or Non-Performing Assets (NPA). A bad bank is simply an entity which specialises in handling bad loans or NPAs.

A bad bank is a bank set up to buy the bad loans and other illiquid holdings of another financial institution. The entity holding significant nonperforming assets will sell these holdings to the bad bank at market price.

When a loan is past its due date yet remains unpaid for a predetermined period is classified as an NPA. Such a bad debt is the loan that is in arrears or in default. These are the loans or advances whose interest or principal has not been on time. These assets are listed on the balance sheet.

About: The bad bank is an Asset Reconstruction Company (ARC) or an Asset Management Company (AMC) that takes over the bad loans of commercial banks, manages them and finally recovers the money over a period of time.

The GNPA ratio of scheduled commercial banks reduced to 3.0% as of December 31, 2023, from 4.6% over a year ago and may drop to 2.80%-2.90% by FY24 end. Gross Non-Performing Assets (GNPAs) of Scheduled Commercial Banks (SCBs) reduced by 21.1% y-o-y to Rs.

The National Assets Reconstruction Company Ltd (NARCL), the government-backed bad bank, on Tuesday said it has appointed former State Bank of India (SBI) official Natarajan Sundar as its managing director and chief executive.

If that happens, customers' accounts will simply transfer over to the new bank. You will get information about the transition, and you will likely get new debit cards and checks (if applicable). If another bank doesn't take over the assets, the FDIC will send depositors a reimbursem*nt check “as soon as possible.”

An Asset Reconstruction Company is a specialized financial institution that buys the NPAs or bad assets from banks and financial institutions so that the latter can clean up their balance sheets.

Definition: Shadow banks refer to financial institutions that perform functions similar to traditional banks, such as raising deposits, issuing equity, and lending to investors and consumers. However, they operate outside the stringent regulatory framework applied to traditional banks.

What happens after NPA in India? ›

Legal Actions. Following are the Notice issued by the Bank to the Borrower to recover their loans. Loan Recall Notice: This is a total loan recall notice issued by the bank after the declaration of the account as an NPA account. This notice says to deposit the entire amount of the loan in a particular given time.

#1 Axis Bank

Axis Bank is the third-largest private-sector bank in India (in terms of loan book) with a pan-India presence of 5,000+ branches. The bank's net NPAs stand lowest among both public and private banks at 0.3% of total advances. Gross NPAs stood at 1.43% as against 1.58% as on 31 December 2023.

The factors that are contributing to NPA are poor loan management policy, improper credit appraisal, business failures, poor recovery of receivables, sluggish legal system, industrial recession, and adverse exchange rates etc.

The banks faced a high level of Non-Performing Assets (NPAs) and the return on assets turned negative. The banking crisis was followed by the failure of a major Non-Banking Financial Company (NBFC), an urban co-operative bank and a housing finance company triggering further fears of a meltdown.

A bank failure is the closing of a bank by a federal or state regulator when the bank can't meet its obligations to depositors, borrowers, and others. The federal government has the power to close national banks and banking commissioners have the power to close state-chartered banks.

Banks close when they do not meet their responsibilities to depositors and others. The bank deposits are insured by Deposit Insurance and Credit Guarantee Corporation (DICGC), a subsidiary of the Reserve Bank of India (RBI).

The top three Indian lenders — State Bank of India, ICICI Bank, and HDFC Bank — remained Domestic Systemically Important Banks (D-SIBs) for the banking regulator as the Reserve Bank of India (RBI) listed out lenders that were too big to fail in 2023.