Economy News

RBI to make Stronger Governance Structure in Banks – Light Shed on ‘Bad Bank’

The Reserve Bank of India is on its way of fostering the supervisions of financial entities identifying the root causes of strains.

The governor of RBI Shaktikanta Das urged the need of strengthening the governing structure of NBFCs to certify larger financial stability in the system.

Das addressed the need for proper internal audit in banks as an important component in ensuring the financial stability of these institutions.

Das also quotes about the post-COVID issues that banks would have to be prepared for. RBI is now open to the idea of bad bank in case of any proposal is made.

A corporate structure which isolates liquidity and high risk assets held by a bank or a financial organisation, or perhaps a group of banks or financial organisations is called bad bank.

The purpose of creating a bad bank is very similar to a typical ARC.

Though it never gained ground, but still bad bank creation was supported by the government and industry as a critical reform.

Bad Bank is not a new thing which came up with 2021. Earlier in 2018 as well, the government came up with a plan in public banks regarding bad loan resolutions.

According to the experts, the idea is good to go and more productive now as banks have already made 70-80% provisions in NPAs.

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