Introduction of bad bank can make existing ARCs more effective: RBI paper

Introduction of a bad bank may help “shape the operations” of the existing asset reconstruction companies (ARCs), an RBI paper said, noting that a sizable bulk of assets bought by such entities have not been resolved for a long time. The paper, published in the central bank’s monthly bulletin for April, also flagged risks of an excessive reliance on banks by the ARC industry. It said banks supply non performing assets (NPAs) to the ARCs, hold shareholding in these entities and also lend to them, which makes it necessary to monitor if there is a “circuitous movement of funds between banks and these institutions (ARCs)”. In her Budget speech for FY22, Finance Minister Nirmala Sitharaman had declared that a new ARC will be created to hold the sour assets of the state-run lenders and resolve such assets professionally.