Finance Minister Nirmala Sitharaman proposed the formation of a new bad bank in the general budget to get the banks out of the NPA problem, it can be established within one to 2 months. This claim has been made by Secretary of the Department of Financial Services Debashish Panda. Debashish Panda told Moneycontrol that the government will start the new Bad Bank not next month but next month. The government hopes that Bad Bank will be able to eliminate the problems associated with NPAs of banks.
Debashish Panda said that the NPA resolution from Bad Bank will ease and all NPAs will be brought in one place. This bank will initially consist of NPAs ranging from 2 to 2.25 lakh crores. Debashish Panda also told Moneycontrol that the new Development Finance Institution (DFI) announced in the budget would be known as National Bank for Financing Infrastructure and Development (National Bank for Financing, Infrastructure, and Development). Its stakeholders will be government and private banks.
Debashish Panda said that the government plans to merge India Infrastructure Finance Company Limited (IIFCL) with DFI. He said that any private DFI will be regulated by the Reserve Bank of India (RBI). The central government will invest Rs 20,000 crore in the new DFI and with the help of private players, there is a plan to capitalize it to Rs 5 lakh in the next 3 years.
Bad Bank will work on 15:85 Model
Debashish Panda told Moneycontrol that the new Bad Bank can work on the 15:85 model. Under this model, banks with NPA from Bad Bank will get 15% cash in the form of upfront payment cash, while these banks will get 85% value in the form of receipts. Debashish Panda said that the government will not invest even a rupee in Bad Bank and the government will not have a shareholding in this bank.
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