Whenever we listen word bad; everyone has only 1 thought and that is something which is not good or something fishy with that thing. But in the case of Bad Bank it's not the same. Bad bank is not like the banks which are bad in nature…and we can't justify the word bad related to banks. So, why it is named as Bad bank? Actually Bad bank is termed so because it offers bad loans or Non performing assets. Last year in May “Indian Bank Association” gave a proposal of “BAD BANK”  to Government  (Finance minister) and RBI .As they have estimated ;The bad bank would require atleast ten thousand crore of capital initially. As the time passes loans get accumulate and simultaneously interest rate get accumulated.

The working of the bad bank will be like ;the bad loans can be taken out from the bank book and will be transferred to bad bank. And the commercial bank first divide the assets into good assets and bad assets As a result the banks which have high NPA can clean up or deleverage  its  own balance sheet ,reduce its exposure to risky assets , and thereby boundary out  itself. A bad bank is expected to help the banks by absorbing all their bad assets ,usually at a price below the book value of the loans and manages to finally recover all their money over a period of time. All the commercial banks can be benefitted from this and the chances of risk will be very less.

But it's just simple on a piece of paper and to listen but the implementation is very tough  and complicated that's why till now it has not been implemented by policymakers in India. Though 1st time it was stated in year 1988 in US. To tackle the problem of bad loans many agencies have been suggested to open like (PAMC) and (NAMC) .Bad banks help to clean up the balance sheets of commercial banks and make them financially healthy .Also allows the bank to focus on core activity of lending and leaves the resolution for expert views.

Former RBI governor “Raghuram Rajan" was against this concept and said that it creates a moral hazard and enables the bank to  continue its reckless lending practices. Framing out the bad entities and services frees up to the main bank to convert it in a good bank. It is mainly to recover from defaulters and to maintain the bank working in a healthy manner.