CEA pitches for pvt sector led bad bank to deal with NPAs
NEW DELHI: Chief economic adviser K V Subramanian has made a strong case for setting up of a bad bank led by private sector to effectively deal with nonperforming assets of the financial sector which may see a surge once regulatory forbearance to deal with the impact of Covid-19 is withdrawn.
The proposal to set up a bad bank has been under consideration of the government for long and some steps may be announced in the Budget 2021-22 to be unveiled by finance minister Nirmala Sitharaman on Monday in the Lok Sabha.
Bad bank refers to a financial institution which takes over bad assets of lenders and undertakes resolution. Lenders have been making a case for setting up a bad bank to ease out pressure of bad loans on them in these difficult times.
“The bad bank will certainly help in consolidating some of the non performing assets. It’s important to also think about implementing the bad bank in the private sector that enables (faster) decision making,” he told PTI in an interview.
Resolution of bad assets with alacrity in decision making often in the public sector is impacted because of the fear of 3Cs, he said.
3Cs refer to Central Bureau of Investigation (CBI), Central Vigilance Commission (CVC) and Comptroller and Audit General (CAG).
“So, the bad bank idea itself is actually something which is required at this point in time, but also designing it in the private
sector actually has a lot more possibility for it to be effective,” he said.
The Economic Survey 2017 had proposed this idea, suggesting the creation of a bad bank called Public Sector Asset Rehabilitation Agency (PARA) to help tide over the problem of stressed assets.
Earlier this month, RBI Governor Shaktikanta Das indicated that the central bank can consider the idea of a bad bank to tackle non-performing assets (NPAs).
“If there’s a proposal to set up a bad bank, the RBI will look at it. We have regulatory guidelines for asset reconstruction companies,” Das had said.
Subramanian, the lead author of the Economic Survey 2020-21, has made a case for carrying out a fresh asset quality review (AQR) once the ongoing forbearances related to Covid-19 come to an end.
Any AQR exercise, the Survey said, must be accompanied by a round of bank recapitalisation.