Faced with the prospect of dramatic rise in stressed assets of public sector banks (PSBs), about which the RBI warned in its recent report, the government is setting up yet another resolution mechanism. It proposes a bad bank under the ARC (Asset Reconstruction Company) and AMC (Asset Management Company) model in which ARC will aggregate all stressed assets and transfer them to AMC for resolution.
Post-2014, the government has tried three debt resolution mechanisms: (i) Strategic Debt Restructuring (SDR) scheme of 2015 which allows creditors to take over firms unable to pay and sell them to new owners (ii) Sustainable Structuring of Stressed Assets (S4A) of 2016 which lets creditors take 50% haircut to restore the financial viability o…
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