The Indian Banks Association (IBA) has proposed to the Reserve Bank of India and the government the setting up of a ‘bad bank’ to handle the Rs 75,000 crore worth of NPAs in the banking system in the country. Bad bank is a concept successfully implemented in several developed countries undertaking the task of isolating risky assets in the books of banks and then successfully resolving them. Earlier, a panel led by then Punjab National Bank MD and CEO Sunil Mehta had proposed the setting up of bad bank, and then called Sashakt. IBA is understood to have recommended the establishment of an asset reconstruction company (ARC), asset management company (AMC) and an alternate investment fund (AIF) as the basic structure of the bad bank. While the ARC will be owned by the government, the AMC and AIF will be floated with participation from the public and private sector. State Bank of India chairman Rajnish Kumar, who is also the current chairman of IBA, too said banks are proposing to set up a bad bank to handle stressed assets. IBA has estimated that a bad bank would need a capital of approximately Rs 10,000 crore to launch operations.
