{"id":35332,"date":"2024-03-21T10:30:15","date_gmt":"2024-03-21T10:30:15","guid":{"rendered":"https:\/\/edukemy.com\/blog\/?p=35332"},"modified":"2024-03-21T10:30:16","modified_gmt":"2024-03-21T10:30:16","slug":"bad-bank-and-public-sector-asset-rehabilitation-agency-para-upsc-economy-notes","status":"publish","type":"post","link":"https:\/\/edukemy.com\/blog\/bad-bank-and-public-sector-asset-rehabilitation-agency-para-upsc-economy-notes\/","title":{"rendered":"Bad Bank and Public Sector Asset Rehabilitation Agency (PARA) &#8211; UPSC Economy Notes"},"content":{"rendered":"\n<figure class=\"wp-block-image size-full\"><a href=\"https:\/\/edukemy.com\/upsc\/upsc-economy?utm_source=Blog&amp;utm_medium=Banner&amp;utm_campaign=Blog+Economy\" target=\"_blank\" rel=\"noreferrer noopener\"><img fetchpriority=\"high\" decoding=\"async\" width=\"1280\" height=\"300\" src=\"https:\/\/edukemy.com\/blog\/wp-content\/uploads\/2024\/06\/17.png\" alt=\"\" class=\"wp-image-42386\" srcset=\"https:\/\/edukemy.com\/blog\/wp-content\/uploads\/2024\/06\/17.png 1280w, https:\/\/edukemy.com\/blog\/wp-content\/uploads\/2024\/06\/17-1170x274.png 1170w, https:\/\/edukemy.com\/blog\/wp-content\/uploads\/2024\/06\/17-585x137.png 585w\" sizes=\"(max-width: 1280px) 100vw, 1280px\" \/><\/a><\/figure>\n\n\n\n<p><strong>Introduction:<\/strong> The concept of a &#8220;bad bank&#8221; or a dedicated institution like the Public Sector Asset Rehabilitation Agency (PARA) has been proposed to address the issue of non-performing assets (NPAs) in Public Sector Banks (PSBs). The Economic Survey 2016-2017 recommended the establishment of PARA to act as a special purpose vehicle (SPV) to address the NPA problem.<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_73 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<label for=\"ez-toc-cssicon-toggle-item-69d51fdba296c\" class=\"ez-toc-cssicon-toggle-label\"><p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<span class=\"ez-toc-cssicon\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-69d51fdba296c\"  \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/edukemy.com\/blog\/bad-bank-and-public-sector-asset-rehabilitation-agency-para-upsc-economy-notes\/#Key_Points\" title=\"Key Points:\">Key Points:<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/edukemy.com\/blog\/bad-bank-and-public-sector-asset-rehabilitation-agency-para-upsc-economy-notes\/#FAQs\" title=\"FAQs\">FAQs<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/edukemy.com\/blog\/bad-bank-and-public-sector-asset-rehabilitation-agency-para-upsc-economy-notes\/#Q_What_is_a_Bad_Bank\" title=\"Q: What is a Bad Bank?\">Q: What is a Bad Bank?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/edukemy.com\/blog\/bad-bank-and-public-sector-asset-rehabilitation-agency-para-upsc-economy-notes\/#Q_How_does_a_Bad_Bank_function\" title=\"Q: How does a Bad Bank function?\">Q: How does a Bad Bank function?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/edukemy.com\/blog\/bad-bank-and-public-sector-asset-rehabilitation-agency-para-upsc-economy-notes\/#Q_What_is_the_purpose_of_establishing_a_Public_Sector_Asset_Rehabilitation_Agency_PARA\" title=\"Q: What is the purpose of establishing a Public Sector Asset Rehabilitation Agency (PARA)?\">Q: What is the purpose of establishing a Public Sector Asset Rehabilitation Agency (PARA)?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/edukemy.com\/blog\/bad-bank-and-public-sector-asset-rehabilitation-agency-para-upsc-economy-notes\/#Q_How_does_PARA_differ_from_a_traditional_Bad_Bank\" title=\"Q: How does PARA differ from a traditional Bad Bank?\">Q: How does PARA differ from a traditional Bad Bank?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/edukemy.com\/blog\/bad-bank-and-public-sector-asset-rehabilitation-agency-para-upsc-economy-notes\/#Q_What_are_the_potential_benefits_of_implementing_a_Bad_Bank_or_PARA\" title=\"Q: What are the potential benefits of implementing a Bad Bank or PARA?\">Q: What are the potential benefits of implementing a Bad Bank or PARA?<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/edukemy.com\/blog\/bad-bank-and-public-sector-asset-rehabilitation-agency-para-upsc-economy-notes\/#In_case_you_still_have_your_doubts_contact_us_on_9811333901\" title=\"In case you still have your doubts, contact us on 9811333901.&nbsp;\">In case you still have your doubts, contact us on 9811333901.&nbsp;<\/a><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/edukemy.com\/blog\/bad-bank-and-public-sector-asset-rehabilitation-agency-para-upsc-economy-notes\/#Visit_our_YouTube_Channel_%E2%80%93_here\" title=\"Visit our YouTube Channel &#8211;&nbsp;here\">Visit our YouTube Channel &#8211;&nbsp;here<\/a><\/li><\/ul><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Key_Points\"><\/span><strong>Key Points:<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<ol class=\"wp-block-list\"><li><strong>Purpose of PARA:<\/strong><ul><li>PARA serves as an SPV with the specific goal of resolving the NPA problem in PSBs.<\/li><li>The agency is designed to raise funds by issuing government bonds, which will be used to purchase significant bad loans from PSBs.<\/li><\/ul><\/li><li><strong>Advantages of PARA:<\/strong><ul><li>Relieving PSBs of NPAs: PARA aims to relieve PSBs of the burden of holding significant NPAs.<\/li><li>Faster Resolution: Consolidating bad loans under PARA allows for a quicker resolution compared to individual bank settlements.<\/li><li>Better Bargaining Power: Having a single entity like PARA as the buyer provides an advantage in negotiating terms for the purchase of bad loans.<\/li><\/ul><\/li><li><strong>P.J. Nayak Committee Recommendations:<\/strong><ul><li>The P.J. Nayak Committee, set up by the RBI, provided governance-related recommendations for banks.<\/li><li>Recommendations included reducing the government&#8217;s stake in PSBs to below 50%, professionalizing board appointments, and introducing fixed terms for top management positions.<\/li><\/ul><\/li><li><strong>Union Budget 2021-22 and Bad Bank:<\/strong><ul><li>The Union Budget 2021-22 announced the establishment of a bad bank to address stressed assets in banks.<\/li><li>The bad bank would operate through an Asset Reconstruction Company (ARC) model.<\/li><li>Banks can transfer distressed assets to this entity at a discounted rate, and professionals will work on resolutions, enabling originating banks to focus on new business.<\/li><\/ul><\/li><li><strong>COVID-19 Impact and Bad Bank:<\/strong><ul><li>The economic challenges posed by COVID-19 exacerbated the NPA problem.<\/li><li>Establishing a bad bank is seen as a strategy to free up banks from the burden of bad loans, facilitating credit growth.<\/li><\/ul><\/li><li><strong>Project Sashakt (2018):<\/strong><ul><li>In 2018, the government introduced &#8220;Project Sashakt,&#8221; a plan for PSBs that included a five-point strategy for bad loan resolution.<\/li><li>The plan involved setting up an independent Asset Management Company (AMC) aligned with the Insolvency and Bankruptcy Code (IBC) to focus on asset turnaround, job creation, and protection.<\/li><\/ul><\/li><\/ol>\n\n\n\n<p>The establishment of PARA or a bad bank reflects a strategic approach to efficiently manage and resolve the challenges posed by NPAs in PSBs, aiming for a healthier financial sector and economic growth.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"FAQs\"><\/span>FAQs<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Q_What_is_a_Bad_Bank\"><\/span>Q: <strong>What is a Bad Bank?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>A: A Bad Bank is a financial institution that specializes in buying up non-performing assets (NPAs) or distressed assets from other banks at a discounted price. Its primary objective is to clean up the balance sheets of banks by transferring these troubled assets, thereby helping them to focus on their core lending activities and improving their financial health.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Q_How_does_a_Bad_Bank_function\"><\/span>Q: <strong>How does a Bad Bank function?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>A: A Bad Bank typically purchases NPAs from other banks or financial institutions at a discounted price, often using funds provided by the government or private investors. It then works on recovering as much value as possible from these assets through various means such as restructuring, asset sales, or debt recovery processes. The profits generated from these activities are used to cover the acquisition costs and operational expenses of the Bad Bank.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Q_What_is_the_purpose_of_establishing_a_Public_Sector_Asset_Rehabilitation_Agency_PARA\"><\/span>Q: <strong>What is the purpose of establishing a Public Sector Asset Rehabilitation Agency (PARA)?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>A: The establishment of PARA aims to address the issue of rising NPAs in the Indian banking sector, particularly among public sector banks. PARA serves as a specialized entity dedicated to resolving and rehabilitating stressed assets in a systematic and efficient manner. It assists in the resolution of NPAs through mechanisms such as asset restructuring, debt recovery, and asset sales, thereby improving the overall health of the banking system.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Q_How_does_PARA_differ_from_a_traditional_Bad_Bank\"><\/span>Q: <strong>How does PARA differ from a traditional Bad Bank?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>A: While both PARA and a Bad Bank share the common objective of addressing NPAs, PARA specifically focuses on resolving distressed assets within the public sector banking system. It operates under a government-backed framework and collaborates closely with regulatory authorities and public sector banks to facilitate the resolution process. Additionally, PARA may have access to additional resources and regulatory support compared to a traditional Bad Bank.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Q_What_are_the_potential_benefits_of_implementing_a_Bad_Bank_or_PARA\"><\/span>Q: <strong>What are the potential benefits of implementing a Bad Bank or PARA?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<ul class=\"wp-block-list\"><li><strong>Asset Quality Improvement:<\/strong> By transferring NPAs to a specialized entity like a Bad Bank or PARA, banks can clean up their balance sheets and focus on productive lending activities, thereby improving their asset quality.<\/li><li><strong>Financial Stability:<\/strong> Resolving NPAs helps enhance the overall stability of the banking sector by reducing the burden of toxic assets and mitigating systemic risks.<\/li><li><strong>Credit Flow:<\/strong> With healthier balance sheets, banks are better positioned to extend credit to businesses and individuals, stimulating economic growth.<\/li><li><strong>Investor Confidence:<\/strong> The establishment of a Bad Bank or PARA signals a proactive approach by the government towards resolving the NPA crisis, potentially boosting investor confidence in the banking sector.<\/li><\/ul>\n\n\n\n<figure class=\"wp-block-image size-full is-resized\"><a href=\"https:\/\/edukemy.com\/upsc\/upsc-essay?utm_source=Blog&amp;utm_medium=Banner&amp;utm_campaign=Essay\" target=\"_blank\" rel=\"noreferrer noopener\"><img decoding=\"async\" data-src=\"https:\/\/edukemy.com\/blog\/wp-content\/uploads\/2024\/06\/UPSC-Essay-Course-1280\u00d7300-1-3.svg\" alt=\"\" class=\"wp-image-42688 lazyload\" width=\"781\" height=\"182\" src=\"data:image\/gif;base64,R0lGODlhAQABAAAAACH5BAEKAAEALAAAAAABAAEAAAICTAEAOw==\" style=\"--smush-placeholder-width: 781px; --smush-placeholder-aspect-ratio: 781\/182;\" \/><\/a><\/figure>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"block-a89a3d67-2417-45cd-a2fb-0111b244b0c1\"><span class=\"ez-toc-section\" id=\"In_case_you_still_have_your_doubts_contact_us_on_9811333901\"><\/span><strong>In case you still have your doubts, contact us on 9811333901.<\/strong>&nbsp;<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p id=\"block-69a62278-baf6-4ddd-a549-0ddd2778f323\">For UPSC Prelims Resources,&nbsp;<a href=\"https:\/\/edukemy.com\/upsc-cse-prelims-resource-centre\" target=\"_blank\" rel=\"noreferrer noopener\">Click here<\/a><\/p>\n\n\n\n<p id=\"block-c56c7fb3-ec87-4e90-b054-6f51ec4c67f5\">For Daily Updates and Study Material:<\/p>\n\n\n\n<p id=\"block-b119f379-961e-41a3-8289-c115ec5ee6e2\">Join our Telegram Channel &#8211;&nbsp;<a href=\"https:\/\/t.me\/WithEdukemy4IAS\" target=\"_blank\" rel=\"noreferrer noopener\">Edukemy for IAS<\/a><\/p>\n\n\n\n<ul class=\"wp-block-list\" id=\"block-b3874375-be5a-4d16-856f-48851f19bc36\"><li>1. 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Mains Answer Writing Practice &#8211;&nbsp;<a href=\"https:\/\/bit.ly\/3mZuVxl\" target=\"_blank\" rel=\"noreferrer noopener\">here<\/a><\/li><\/ul>\n\n\n\n<h4 class=\"wp-block-heading\" id=\"block-fecb2f6f-20a7-4f52-8c9d-10509a066c20\"><span class=\"ez-toc-section\" id=\"Visit_our_YouTube_Channel_%E2%80%93_here\"><\/span>Visit our YouTube Channel &#8211;&nbsp;<a href=\"https:\/\/www.youtube.com\/@EduKemyforIAS\" target=\"_blank\" rel=\"noreferrer noopener\">here<\/a><span class=\"ez-toc-section-end\"><\/span><\/h4>\n","protected":false},"excerpt":{"rendered":"<p>The concept of a &#8220;bad bank&#8221; or a dedicated institution like the Public Sector Asset Rehabilitation Agency (PARA) has been proposed to address the issue of non-performing assets <\/p>\n","protected":false},"author":17,"featured_media":35336,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_eb_attr":"","om_disable_all_campaigns":false,"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"_uf_show_specific_survey":0,"_uf_disable_surveys":false,"_lmt_disableupdate":"","_lmt_disable":"","footnotes":""},"categories":[209],"tags":[2776,235,232,213,140],"class_list":["post-35332","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-economy-notes","tag-bad-bank","tag-economy-notes","tag-upsc","tag-upsc-notes","tag-upsc_preparation_strategy"],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/edukemy.com\/blog\/wp-json\/wp\/v2\/posts\/35332","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/edukemy.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/edukemy.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/edukemy.com\/blog\/wp-json\/wp\/v2\/users\/17"}],"replies":[{"embeddable":true,"href":"https:\/\/edukemy.com\/blog\/wp-json\/wp\/v2\/comments?post=35332"}],"version-history":[{"count":1,"href":"https:\/\/edukemy.com\/blog\/wp-json\/wp\/v2\/posts\/35332\/revisions"}],"predecessor-version":[{"id":35337,"href":"https:\/\/edukemy.com\/blog\/wp-json\/wp\/v2\/posts\/35332\/revisions\/35337"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/edukemy.com\/blog\/wp-json\/wp\/v2\/media\/35336"}],"wp:attachment":[{"href":"https:\/\/edukemy.com\/blog\/wp-json\/wp\/v2\/media?parent=35332"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/edukemy.com\/blog\/wp-json\/wp\/v2\/categories?post=35332"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/edukemy.com\/blog\/wp-json\/wp\/v2\/tags?post=35332"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}