Bad Bank: A perfect solution for bad debts
What is Bad Bank? Bad Bank is a house of bad loans or NPA’s . It would serve only to aid in the recovery of these risky assets. It is also known as Public Sector Rehabilitation Agency (PARA). or It is an entity that buys bad loans/ NPA’s from commercial banks & financial institutions at a discounted price. Example A commercial bank lends 100 crores to the borrowers. Out of that 80 crores paid by the borrowers but the rest 20 crore is not recoverable. So, the commercial bank considered that 20 crores as a bad loan or NPA’s. Now, a bad bank will handle this situation. So, it buys that bad loan from a commercial bank at a discounted price. Then, It will recover the loan amount from borrowers. Like this, these banks work and earn their profit. Advantages Bad banks help commercial banks by absorbing all their bad assets, usually at a price below the value of these loans & manage them & finally recover the money over the period. Commercial banks get free f...