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Q.3) What is a bad bank? Critically examine their utility in dealing with the challenge of non-performing assets faced by the banks and suggest the ways to make bad banks effective. (10 Marks)

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Swatantra

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  • https://indianexpress.com/article/opinion/columns/india-bad-bank-national-asset-reconstruction-company-china-7374608/
  • In the intro, briefly explain the bad bank.
  • In the body, discuss the advantages such as freeing up of assets and locked capital, cleaning the balance sheets of banks, the quickening of the resolution process etc. In next part, mention the issues like lack of capital, lack of interest by private investors in the bad bank. In the suggestions mention fixing the tenure for bad bank, specific mandate, diverse investors in bad banks etc.
  • Conclude by mentioning that the government need to be aware of the above issues with bad banks as demonstrated by the experiences of other countries such as China.

 

Comments

23 responses to “Q.3) What is a bad bank? Critically examine their utility in dealing with the challenge of non-performing assets faced by the banks and suggest the ways to make bad banks effective. (10 Marks)”

  1. Anupam Singh Avatar
    Anupam Singh

    Refund 422544

    1. Swatantra Avatar
      Swatantra

      Anupam

      Introduction is good. In advantages points you have mentioned are fine. You can further mention-
      – resolution of twin balance sheet deficit
      – more assurance for both operational and financial creditors regarding recovery of their funds
      –  less chance of litigation on decision of arbitrage
      – will reduce the requirements of frequent capitalization
      – more public confidence due to nature of political economy in India.

      Bad bank will be created for resolution purpose only, so lack of professional shouldn’t be an issue. Rest of the points are fine. Some you can add-
      – it can lead to populism and lead to more wastage of resources
      – it will set a bad precedent for market based resolution through IBC
      – funds to support such large scale expenditure are beyond fiscal scope of govt.

      In the suggestions also mention fixing the tenure for bad bank, specific mandate with a clear resolution strategy, develop market method of resolution , promote IBC etc

      Conclusion is good.

      Your structure of the answer is fine, you can work a bit on the content to include diverse points.

      Read some other answers. Keep writing.

  2. ankita thakur Avatar
    ankita thakur

    Payment id-HJHAZEWKSzM3CX

    1. Swatantra Avatar
      Swatantra

      Ankita

      Introduction is fine. You can add that economy survey recommended it.

      In the body mention the advantages and drawbacks under separate subheadings. Some points are totally irrelevant, like the 1st point you have written, just don’t summarize the article mentioned, try to understand the demands of the question and answer accordingly.

      You can mention the following advantages-
      – faster resolution of twin balance sheet deficit
      – more assurance for both operational and financial creditors regarding recovery of their funds
      –  less chance of litigation on decision of arbitrage
      – deeper pocket of this bank will allow more assured and quicker resolution
      – will reduce the requirements of frequent capitalization of banks
      – more public confidence due to nature of political economy in India.

      Major challenges-
      – it can lead to populism and lead to more wastage of resources
      – it will set a bad precedent for market based resolution through IBC
      – funds to support such large scale expenditure are beyond fiscal scope
      – lack of interest by private investors in the bad bank

      Way forward and conclusion are good. Read some other answers. Keep writing. 🙂

  3. SUMITA DOWERAH Avatar
    SUMITA DOWERAH

    Payment Id: pay HFrdyJMOEZ9967. Please review, Sir.

    1. Swatantra Avatar
      Swatantra

      Sumita

      Good attempt, structure of the answer is good, content is also fine, you can add some more points.

      In advantages you can add – less chance of litigation on decision of arbitrage, deeper pocket of this bank will allow more assured and quicker resolution, will reduce the requirements of frequent capitalization of banks, more public confidence due to nature of political economy in India etc.

      Issues mentioned are also okay, you can add – can lead to populism and lead to more wastage of resources, will set a bad precedent for market based resolution through IBC, funds to support such large scale expenditure are beyond fiscal scope too.

      Way forward is good, mention also the need to have a diverse set of investors.

      Conclusion is good. Read some other answers. Keep writing.

  4. Rajesh Reddy Avatar
    Rajesh Reddy

    order id 0000422220

    1. Rajesh Reddy Avatar
      Rajesh Reddy

      please review sir

    2. Swatantra Avatar
      Swatantra

      Rajesh

      You have made a decent attempt, your knowledge of the topic is good.

      Introduction is good, flowchart is fine too. No need to write challenges faced by banks in dealing with NPAs. You can just mention that there are a lot of NPAs and the crisis is far from over, use some data point-in the intro only.

      Core demands of the question are advantages, challenges and way forward for band banks.

      Points in advantages are good. Challenges part is missing. In challenges you can mention-
      – it can lead to populism and lead to more wastage of resources
      – it will set a bad precedent for market based resolution through IBC
      – funds to support such large scale expenditure are beyond fiscal scope
      – lack of interest by private investors in the bad bank

      Way forward and conclusion are good. In way forward you can add points like need of diverse investors in bad banks, also market based resolution methods should be promoted etc

      Read some other answers. Keep writing. 😊

  5. Gauri Shankar Meena Avatar
    Gauri Shankar Meena

    Payment Id pay_HHlJ1R1WIIMdGT
    Please review

    1. Swatantra Avatar
      Swatantra

      Gauri Shankar

      Concept of bad banks has been there from quite some time, Indian banks are not the first one to initiate it, so you can avoid that line. Otherwise introduction is fine.

      Mention advantages of bad banks rather than need, you can mention needs here only.
      You can add some points such as – more assurance for both operational and financial creditors regarding recovery of their funds, less chance of litigation on decision of arbitrage, will reduce the requirements of frequent capitalization of banks, more public confidence due to nature of political economy in India etc

      Challenges are fine,not clear what do you mean by not suited for Indian problem, you can explain it a bit.

      In way forward mention things like fixing the tenure for bad bank, specific mandate with a clear resolution strategy, develop market method of resolution, need of diverse investors etc

      Structure of your answer is okay, you can work on improving the content a bit.

      Read some other answers. Keep writing.

      4.5/10

  6. Arpit Singh Avatar
    Arpit Singh

    Payment I’d HHU8LODcXby9Db

    1. Swatantra Avatar
      Swatantra

      Arpit

      Decent attempt. Introduction, advantages and challenges- all are good. Points are also enough I think for a 10 marker. However, you can mention recapitalization point in advantages of bad bank as then government won’t have to recapitalize the banks so frequently.

      Also you have missed a core demand of the question, that is suggesting ways to make the bad banks effective.

      Mention a way forward with steps such as-
      fixing the tenure for bad bank
      specific mandate with a well defined resolution strategy
      diverse investors in bad banks etc.

      Also you can mention that we should develop market method of resolution, promote IBC etc

      Conclusion is fine. Read some other answers. Keep writing.

      4.5/10

  7. Fun Learning with Rajlaxmi. Avatar
    Fun Learning with Rajlaxmi.

    Review
    Ref no 0000420120

    1. Swatantra Avatar
      Swatantra

      Rajlaxmi

      Good attempt. Introduction is fine. Advantages are also fine, last point is not needed, you can mention in the intro only that rising NPA crisis inspite of various efforts have forced us to think in the direction of bad banks. Further in advantages you can add points like- will reduce the requirements of frequent capitalization of banks, more public confidence due to nature of political economy in India etc

      Points in demerits are good.

      Way forward is also good. Regarding 3rd point about security receipts, better write that we need a diverse set of investors for bad banks rather than banks themselves financing it. Otherwise such accurate data will be hard to remember in exam.

      Conclusion is good. Read some other answers. Keep writing. 🙂

  8. akchhat sharma Avatar
    akchhat sharma

    Payment ID 0000422595

    1. Swatantra Avatar
      Swatantra

      Akchhat

      Introduction is fine. Points in utility are also good. You can add some points like- will reduce the requirements of frequent capitalization of banks, more public confidence due to nature of political economy in India etc

      Challenges are also well written. One of the major problems however is the lack of capital for bad banks.Funds to support such large scale expenditure are beyond fiscal scope of government and their is a lack of interest by private investors in the bad bank.

      Also you have missed a core demand of the question, that is suggesting ways to make the bad banks effective.

      Mention a way forward with steps such as-
      fixing the tenure for bad bank
      specific mandate with a well defined resolution strategy
      diverse investors in bad banks etc.

      Also you can mention that we should develop market method of resolution, promote IBC etc

      Read some other answers. Keep writing.

      3.5/10

  9. maira manu Avatar
    maira manu

    Payment Idpay_HR7puUb8tYJMNL
    Please review @swatantra sir

    1. Swatantra Avatar
      Swatantra

      Maira

      Introduction is fine, also mention that bad banks try to resolve the NPAs they but.

      No need to mention the challenges of NPAs. This is a 10 marker and already you have to write enough in advantages, drawbacks and way forward for bad banks. You can mention in the intro only that rising NPA crisis inspite of various efforts have forced us to think in the direction of bad banks.

      In utility, 1st point that you have mentioned is definition only, use it in intro. You can mention some of the following advantages-
      – faster resolution of twin balance sheet deficit
      – more assurance for both operational and financial creditors regarding recovery of their funds
      – deeper pocket of this bank will allow more assured and quicker resolution
      – will reduce the requirements of frequent capitalization of banks
      – more public confidence due to nature of political economy in India.

      In drawbacks, mention issues with bad banks only, no need to mention problem of NPA. Rest of the points are fine. One of the major problems however is the lack of capital for bad banks. You can mention this.

      In way forward, points are fine. You can add points like-
      Need of fixing the tenure for bad bank,
      diverse investors in bad banks etc.

      Conclusion is good.

      Your knowledge is fine but stick to the core demands of the question, no need to write too much.

      Read some other answers. Keep writing.

      4.5/10

  10. Dr. House Avatar
    Dr. House

    REF ID: #0000425733
    Please review @Swatantra Sir

    1. Swatantra Avatar
      Swatantra

      Dr House

      Nice attempt. Introduction and utility are fine. You can add some more advantages like- will reduce the requirements of frequent capitalization of banks, more public confidence due to nature of political economy in India etc

      Challenges are also fine. One of the major problems however is the lack of capital for bad banks.Funds to support such large scale expenditure are beyond fiscal scope of government and their is a lack of interest by private investors in the bad bank. You should mention this.

      Way forward and conclusion are good. You can write a point regarding need of diverse investors in bad banks.

      Also you can mention that we should develop market method of resolution, promote IBC etc

      Read some other answers. Keep writing.

  11. shivanshu pandey Avatar
    shivanshu pandey

    pay_HH4AoVE2qPd386 please review

  12. Deepali Rajan Avatar
    Deepali Rajan

    Kindly review @swatantra sir
    Ref id #420326

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