Bad Bank

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Why A Bad Bank Is A Good Idea

Niti Aayog vice chairman Arvind Panagariya in a recent interview mooted the idea of a "bad bank", essentially a financial institution set up to hold and manage non-performing assets (NPA) acquired from other banks. It is like an isolation ward to prevent the spread of an infectious disease. Opponents to the idea have come up with the arguments that it is unwarranted and will transmit negative signals and create moral hazards. Here's why I think they are wrong.