Bad Bank had been put off for some time now but the government also realizes that it cannot be postponed much beyond now. It could finally happen in this financial year as the COVID-19 has again raised the bogey of weak economic growth spilling over to bank NPAs.

A bad bank is almost akin to a mega ARC that takes over the toxic assets of the banks and allows the banks to run a clean balance sheet.

This was done quite in the US during the Lehman crisis of 2008. The Bad Bank in the Indian context is likely to start off with a base capital of Rs.60,000 crore with government contributing Rs.10,000 crore.

Bad banks can also accept capital from other institutions and they are also permitted to raise debt. Bad banks will also allow commercial banks to see that credit flow is not impacted.