The Emergence of the Concept of ‘Bad Banks’ - A Boost to Strengthen Indian Banking

Abstract

Banks play a crucial role in the financial system of all economies in the globe. Even though the bank’s primary function is receiving deposits and lending loans, at present context banks are performing many roles where the overall contribution is towards the growth and development of the country. By providing financial backup to industries, they promote production and employment generation. In turn, companies are also enjoying profits out of it. But it was also evident in India, businessmen who obtain funds from banks in the form of credit failed to repay the same which adversely affected the financial stability of major players in the banking sector. Taking cognizance of such situations, a proposal for establishing Bad Bank was made in Union Budget 2021-22. The establishment of Bad Banks to extract bad loans from the financial statement of banks, helps banks to focus on their core banking function. The success stories of bad banks operations in foreign countries made the Government of India initiate this step. However, the performance of such a Bank in India can be analyzed only after it’s set up and made operational.