Are bad banks good?

Parley by The Hindu

Last month, the Union government set up the National Asset Reconstruction Company Limited (NARCL) under the Companies Act. It thus delivered on its promise to set up a ‘bad bank’ to clean up the balance sheets of commercial banks. Under the new set up, the NARCL will take over loans worth almost ₹2 lakh crore from the books of commercial banks at a mutually agreed price. The NARCL will pay 15% of the price of these loans upfront in cash to banks and then issue security receipts in lieu of the remaining amount. The NARCL will then try to resolve these bad loans in a time-bound manner with help from the India Debt Resolution Company Limited (IDRCL). In case the IDRCL is unable to sell these bad loans at a satisfactory price to make good on the security receipts, the Centre will step in and fund the gap, but within a budget limit of ₹30,600 crore.

Here we discusss the bad bank proposal.

Guests: C.P. Chandrasekhar, Professor at the Centre for Economic Studies and Planning, JNU; Ajit Ranade, chief economist at the Aditya Birla Group

Host: Prashanth Perumal J.