A Bank is a financial institution entrusted with the responsibilities of accepting deposits, lending money and performing other related activities. The deposits received by the bank from variety of the customers are further distributed in the form of loans to the masses. If everything goes right, the repayment of the loan is regular and the loan is classified as standard asset, but in adverse situation the same asset can become a burden for the bank too wherein the repayment is not regular owing to several reasons. These assets are termed as substandard and consequently NPAs (Non-performing assets).  With an objective to tackle the problem of the mounting NPA’s effecting the profitability and soundness of the banking sector, a new type of bank termed as Bad Bank has been conceptualized. Bad bank refers to the special type of banks which buys the distressed assets from the existing bank for the purpose of recovery and realization. The basic purpose of setting these specialized institutions is to free the books of existing banks from NPAs. Bad banks purchase these assets at discount with the purpose of managing them for speedy recovery. The present paper focuses on the concept of the bad banks, its origin and applications across the globe. The various regulatory mechanisms already functioning in the Indian Banking sector to overcome the problem of mounting NPAs and their achievements so far has also been discussed. The IBA proposed model of Bad banks has also been studied in this paper. The paper attempts to through light on the need of banks, its advantages and hindrances in the path of the formation of these banks.

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Keywords: NPA, Bad Bank, Financial Stability, IBA, PCR, CRAR, GDP.