The term bad bank seems like an oxymoron, but in practice, the concept has been actualized in a few countries to address the problem of bad debt. The National Asset Reconstruction Company, supported by the India Debt Resolution Company, is India’s attempt to absorb and rehabilitate the nonperforming assets plaguing its banking system.
India’s banking system has been plagued by shadow banking since the 1990s, when non-banking financial companies sprouted up and grew, creating a financial crisis that is as unique as the country itself. NBFCs perform the same functions as traditional banks but under the radar of regulation, creating the potential for disruption. Recent failures of NBFCs that have spread to the broader economy have prompted regulators to adopt a stricter stance.