The material on this site is for financial institutions, professional investors and their professional advisers. It is for information only. Please read our Terms & Conditions, Privacy Policy and Cookies before using this site. Please see our Subscription Terms & Conditions.

All material subject to strictly enforced copyright laws. © 2022 Euromoney, a part of the Euromoney Institutional Investor PLC.
South Asia

India’s bad bank sends good signals

India’s plan to set up a bad bank is set to be a game-changer for state lenders pressured by rising non-performing loans. But can the country’s authorities pull it off?

Source: iStock

India’s banks are sitting on huge piles of non-performing assets which are expected to grow even larger once the dust from the Covid-19 pandemic settles.

So finance minister Nirmala Sitharaman’s proposal earlier this year to create an asset management company (AMC) and an asset reconstruction company (ARC) – effectively a bad bank – was welcome news to bankers and investors. The idea is to consolidate and take over the existing stressed debts in the system and sell them to alternative investment funds and other investors.

The Reserve Bank of India, in its Financial Stability Report published in January, said gross non-performing assets (NPA) and net NPA ratios among banks fell to 7.5% and 2.1%, respectively, by September 2020. But it predicted that the gross NPA ratio could rise to as much as 13.5% by September this year under its baseline scenario, or to as much as 14.8% in a severe case.

The big advantage of the bad bank structure is that you can collect all your troubles and give it to someone else to take care of
Dipak Gupta,Kotak Mahindra Bank

That spells trouble for the health of India’s financial system, which has been plagued by various problems in recent years, from a multi-billion-dollar fraud at giant Punjab National Bank, to corporate mismanagement at firms such as Yes Bank and default issues at non-banking financial companies.


You have reached premium content. Please log in to continue reading.

Read beyond the headlines with Euromoney

For over 50 years, our readers have looked to Euromoney to stay informed about the issues that matter in the international banking and financial markets. Find out more about our different levels of access below.


Unlimited access to and

Expert comment, long reads and in-depth analysis interviews with senior finance professionals

Access the results of our market-leading annual surveys across core financial services

Access the results of our annual awards, including the world-renowned Awards for Excellence

Your print copy of Euromoney magazine delivered monthly

£73.75 per month

Billed Annually


Unlimited access to and, including our top stories, long reads, expert analysis, and the results of our annual surveys and awards

Sign up to any of our newsletters, curated by our editors


Already a user?

We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree