Bad Bank
What is a Bad Bank Over a period of time several of our household goods are rendered useless, but continue to occupy valuable space. During Diwali cleaning these assets are either disposed off or dumped in a separate room which becomes the junk yard and from where these assets are disposed off gradually to salvage some value. This cleans the house and frees up space which can be used by items of better utility. Similarly, in a Bank several assets (generated form Bank’s loan) become “Non Performing” over a period of time due to various reasons. These Non Performing Assets (NPAs) become a drag on the Bank’s balance sheet and have to be offloaded so that the balance sheet continues to remain healthy. To draw an analogy to our home cleaning example, after the home is cleaned, it gives a better feeling to visitors, similarly once the Bank’s balance sheet is cleaned it gives a better feeling to visitors (investors, new customers etc.). The storage or junk room in our home is t...