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Setting up a ‘bad bank’ to take on bad debt might be a step in the right direction to reduce NPA’s but we must optimize risk transfer rules to attract private interest. Analyze.

Topic:  Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.

5. Setting up a ‘bad bank’ to take on bad debt might be a step in the right direction to reduce NPA’s but we must optimize risk transfer rules to attract private interest. Analyze. (250 words)

Reference: Live Mint

Why the question:

With the ever rising NPA’s, a multi-pronged approach is the need of the hour to tackle it. This articles makes a case for the same.

Key Demand of the question:

To write about how a ‘Bad Bank’ which is supplemented by private interest can be a panacea to out NPA problem.

Directive:

Analyze – When asked to analyse, you have to examine methodically the structure or nature of the topic by separating it into component parts and present them as a whole in a summary.

Structure of the answer:

Introduction:

Begin by defining a Bad Bank and its purpose.

Body:

Give stats related to the increasing NPA and their future projects from the article.

In the first part, write about features of the bad bank and it will be different from the Asset Reconstruction Company (ARC). Write about its merits and demerits.

In the next part, write about the Bad Bank must be supplemented by attracting private capital and suggest steps to do so.

Conclusion:

Conclude with a way forward to deal with rising NPA’s.