What exactly is the idea of bad bank and why is the RBI currently considering the idea of having a bad bank?

Here is what you need to know about the concept of bad bank as propounded by the Reserve Bank of India and its implications.

· RBI governor, Shaktikanta Das, has agreed to consider the idea of a bad bank if the government was planning something similar to take on bad debts.

· The idea of setting up a bad bank was part of the proposals submitted by the CII as part of its pre-budget memorandum to the government. Even the government’s Economic Affairs Secretary Tarun Bajaj had suggested they were exploring such options.

· Essentially, what a bad bank does is to bundle up all the bad assets of financial institutions at a discounted price. This is then sold to investors.

· This sale is done along with putting an elaborate turnaround plan in place. This would be a central body to hold all the bad assets as a portfolio at discounted prices.