What is a Bad Bank ? Which is proposed in Budget 2021

New Delhi: Union Finance Minister Nirmala Sitharaman on Monday announced setting up of "bad banks", a move to uplift the banking sector from bad loans.

As per the announcement, the government will set up a company-- Asset Reconstruction and Management Company for Stressed Assets---which will take over the bad loans.The idea was in discussion for years and has finally come into being.

The "bad bank" will take over the bad loans of various financial institutions which will help these institutions in cleaning their balance sheets.Ms Sitharaman also proposed a Rs 20,000 crore equity infusion for public sector banks to strengthen their banking services.As per a Reserve Bank of India report, around 7.5 per cent loans in India are bad loans.

A bad bank is a bank set up to buy the bad loans and other illiquid holdings of another financial institution.Economic Affairs Secretary Tarun Bajaj last year said the government is exploring all options, including setting up of a bad bank, to improve the health of the country's banking sector.

The idea of forming a 'bad bank' in India was initially floated in January 2017 when the Economic Survey of India suggested setting up a Public Sector Asset Rehabilitation Agency (PARA).In 2018, the government proposed a five-pronged strategy under Project Sashakt to tackle stress in the banking sector.(UNI)