How the Bad Bank is Going to Work in India

How the Bad Bank is Going to Work in India

 

Investing.com -- Two separate interviews given by Chief Economic Advisor Krishnamurthy Subramanian to Moneycontrol, and Financial Services Secretary Debasish Panda to The Times of India, throw some light on the setup and functioning of the proposed ‘Bad Bank’ that will be set up by the government.

1.      The bank will absorb between Rs 2 lakh crore to Rs 2.2 lakh crore of NPAs (non-performing assets).

2.      The bank will be owned by state-owned and private commercial banks. This will make decision-making faster.

3.      As the bad bank will absorb a significant percentage of NPAs, regular banks can focus on lending which in turn will help the flow of private capital expenditure.

4.      The process will take place under an ARC-AMC model (asset reconstruction company and asset management company). Under the proposed model, the ARC will buy bad loans from banks at a discount (net book value = value of assets (minus) provisions created by banks against these assets).

5.      The AMC will restructure the loans, turn them around, and sell them to a potential investor or to an AIF (alternative investment fund). The AMC will charge a fee for the same.

6.      There will be no equity contribution from the government but the government may provide a sovereign guarantee to meet regulatory requirements.

 

Happy Investing

Source: Investing.com