What Are The Main Objectives of Establishing NARCL (Bad Bank) ?

1.
What are the main objectives of establishing NARCL (Bad Bank)?

The main objective of a bad bank is to create a liquid market for nonperforming assets
(NPAs), with the underlying belief that banks would be able to sell their NPAs at a reasonable
price.
It is a corporate entity that sells illiquid and risky assets held by banks, financial institutions, or a
group of banks. It was developed to assist banks in cleaning up their balance sheets by
transferring problematic loans, allowing the banks to focus on their core business of accepting
deposits and lending money.
2. Do you think the idea will work in the present state of the economy?
The amount of problematic loans has a negative influence on the cash flow. As a result, a
one-time transfer of assets outside of the bank's balance-sheets is critical, allowing banks to
focus entirely on lending activities while the bad bank works with recovering dues through
liquidation, asset restructuring, or any other methods. As a result, banks can now focus on
increasing lending, which is crucial for stimulating investment, while the bad bank will liberate
trapped money in inefficient enterprises, I think both of which will benefit the economy in the
short to medium run.
3. If the idea became a successful one what will be the outcome?
Before we can determine if the bad bank idea will be successful or not, we must consider
what would happen if Bad loans increase: There are primarily two events that have
occurred.
 Return
The concerned bank becomes less profitable because it has to use some of its
profits from other loans to make up for the loss on the bad loans.
 Risk
It becomes more risk-averse, In other words, its authorities are hesitant to offer
loans to company initiatives that look to be risky for fear of increasing an already
high proportion of non-performing assets (or NPAs).
If Bad banks idea is successful:

 From the standpoint of a commercial bank afflicted with high NPA levels,
it will be beneficial. That's because such a bank will liquidate all of its bad
assets, which were draining its earnings, in a single swift transaction. When
the recovery funds are repaid, the bank's situation will improve even
further. Meanwhile, it can continue lending.
 As a results it will improves the Banks balance sheets. Banks with strong
balance sheets can attract new capital from the market and increase credit
growth, which is critical for stimulating investment. Bad banks would also
provide a boost to India's economic growth, which has been hampered by
increased risk aversion as a result of the uncontrollable rise in NPAs.
Furthermore, the bad bank would unlock trapped capital, which will be a
net positive for the economy in the long run.
 Removing stressed assets from a bank's books might give much-needed
relief. In general, banks would be free to focus on lending rather than loan
recovery.
 Have access to free cash that may be used more effectively since further
provisioning for transferred bad loans would not be necessary
 See an increase in credit ratings
 Banks might perhaps see an overall improvement.
4. In case of failure what would be the impact? Who will suffer the most?
In the case it fails, I have indicated in the previous question regarding the risk and return of
banks. Yes, undoubtedly, bad loans will grow as a result, having a significant impact on bank
profitability and posing a significant risk to banks. And they are unable to focus on their primary
operations (lending). The Bank will suffer a lot.
Lastly, the commercial bank bailout plan will fail if the bad bank is unable to sell such damaged
assets (NPAs) in the market. If this occurs, it will ultimately place a burden on taxpayers.
Because the government uses taxpayer’s money to implement any reforms or policy, they do not
spend their own funds.
5. Is there any alternative course of actions that you can suggest to GOI to manage the
NPA’s of the banks?
My opinion is, the alternative for a bad bank in resolving the NPA situation is for only the
particular bank with NPAs, to recover their bad loans. There are several phases involved in the
recovery of NPAs. To begin, a long-term plan should be implemented rather than a short-term
approach. There may not be a good recovery at first. However, do not be disheartened.
Maintaining records manually is beneficial over a lengthy period of time. Follow-up should be
done on a case-by-case basis. Among the measures for rehabilitation are, sending short
reminders, ideally in the local language, which gives good reaction. Speak to the NPA borrowers
in their own language. If there is no answer, issue a Legal Notice. After serving legal notice, file
a lawsuit in a court of law. Following the filing of the Suit, Bank Officials should maintain touch
with the Lawyer and stay up to date on the progress of the case. Bank officials should not leave
the subject to a lawyer's discretion. In general, the Court action should be resolved within 1 to 2
years. Immediately following the Court's ruling, obtain the Decreed Order and submit an
Execution Petition. The next step is to take action under the SARFAESI Act, which entails
selling property without the participation of a court.
For this each bank should have a strict officer who collects the money for this purpose. He
should issue alerts, legal notices, and fight until the money is returned to the bank, along with
interest. He should be held accountable for all of the poor NPAs. An incentive for collecting poor
NPAs might be granted to the officer. Those who have taken out loans may be contacted and
followed up with. .....and, if required, police force can be used. In addition, the government
should provide maximum support to banks in order for them to recover their NPAs.

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What are the main objectives of establishing NARCL (Bad Bank)?

If Bad banks idea is successful:

 See an increase in credit ratings

 Banks might perhaps see an overall improvement.

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