National Asset Reconstruction Ltd. (NARC): Evaluating Bad Banks’ Potential for Banking Reform

Abstract

This paper examines the central role of non-performing assets, and the resultant establishment of bad banks as financial instruments, which were operationalized as a bank composition, in order to purchase the considerably non-performing assets of a public sector bank. This has occurred on three levels. First, under the Banking Companies (Acquisition and Transfer of Undertakings) Act of 1969, 14 major commercial banks in India were nationalised. Second, the resultant issue of non-performing asset (NPA) and the establishment of the Narasimhan Committee by the Central Government in the late 1990s; as a resolution against record high levels of NPAs across India’s banking sector. Third, the advancement of the Swedish bad bank (named Securum) as a compelling case study for bad bank structurization. Securum management adopted various strategies that included but were not limited to providing buy-back options to high-risk defaulter companies and adopting a slower approach to selling assets, instead of disposing of them in bulk. Among the central interests of bad bank has been recently
mulled in India’s Budget of 2021, where significant questions arose as to its effective implementation, in the post-COVID 19 paradigm. This paper uses knowledge developed about bad banks to illustrate the way how policy makers and private-sector players must understand that the prevalence of NPAs in India is not something that can be eradicated overnight, but rather must be resolved through effective fiscal policy measures, progressive legislations and constant supervision.