With reference to Indian economy, the term 'bad bank', frequently mentioned in news, refers to

In the Indian economic context, a 'bad bank' is technically defined as an Asset Reconstruction Company (ARC) or an asset management company that takes over the non-performing assets (NPAs) of commercial banks [1]. Its primary function is to clean up bank balance sheets by purchasing stressed loans at a discount, allowing banks to focus on normal lending activities [2]. In 2021, the Government of India established the National Asset Reconstruction Company Ltd (NARCL) specifically as a 'bad bank' structured as an ARC [3]. While it may work alongside an Asset Management Company (AMC) like IDRCL for debt resolution, the core identity of the bad bank entity itself is that of an ARC [3]. Unlike traditional banks, these entities do not engage in lending or taking deposits but specialize in recovering value from distressed assets over time [1].

Sources

1. [1] Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 3: Money and Banking - Part II > 3.8 NPA Crisis and Bad Bank > p. 138
2. [2] Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 8: Financial Market > Asset Reconstruction Company > p. 231
3. [3] Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 3: Money and Banking - Part II > 3.8 NPA Crisis and Bad Bank > p. 137