NPAGrowthisSlow­ing,butStil­laWorry; RBIOpen­toIdeaofCreatin­gaBadBank

NPA ra­tio for some banks has come down for the first time in many quar­ters, says SS Mun­dra

The Economic Times - - Companies -

Mum­bai: The Re­serve Bank of In­dia is open to cre­at­ing an agency to hold non-per­form­ing as­sets of banks, an idea most re­cently high­lighted by chief eco­nomic ad­viser Arvind Subramanian, to re­lieve the bank­ing sec­tor of its big­gest bur­den.

Cen­tral bank of­fi­cials said they are open to all so­lu­tions on solv­ing the NPA prob­lem of banks, in­clud­ing shift­ing their NPAs into a so-called bad bank. How­ever, such an en­tity should be de­signed well so that these loans are at­trac­tive to buy­ers.

Though the pace of ad­di­tions in NPAs has slowed, the high amount of bad loans on bank bal­ance sheets is a con­cern. Re­solv­ing this prob­lem and re­cap­i­tal­i­sa­tion of the lenders are cru­cial for timely transmission of pol­icy rates and ul­ti­mately re­vive lend­ing to some in­dus­tries, the cen­tral bank said in its mon­e­tary pol­icy state­ment. Deputy gov­er­nor SS Mun­dra said the gross NPA ra­tio for some banks has come down for the first time in many quar­ters, but that isn’t enough to mit­i­gate all wor­ries. “The level of stressed as­sets in the in­dus­try is slightly above 20%; it would not be fair to say that there is no con­cern. There is con­cern,” he said. The RBI has given a num­ber of tools to banks for re­solv­ing the prob­lem and “our sense is that a com­bined use of these tools is some­thing that we will con­tinue to mon­i­tor,” he added.

On hav­ing a bad bank, as sug­gested by Subramanian in t he Eco­nomic Sur­vey, RBI’s new deputy gov­er­nor Vi­ral Acharya said for such an en­tity to work, it has to be de­signed right. “The big piece of the prob­lem is get­ting banks to sell the as­sets at a right price to as­set re­con­struc­tion com­pa­nies and pri­vate in­vestors who want to come in. How to get that right price to come in by us­ing a port­fo­lio or a bad bank kind of an ap­proach, I think that is go­ing to be key,” he said.

The RBI will think about how such an en­tity can be de­signed to at­tract max­i­mum in­vestors. In fact, the idea of a bad bank has been around for some time but has not taken off due to a va­ri­ety of is­sues.

“Bad bank is a good idea but the con­sen­sus on it has been de­layed,” said Sau­rabh Tri­pathi, di­rec­tor at Bos­ton Con­sult­ing Group. “If banks can con­sol­i­date all their bad as­sets, then it will help in quicker res­o­lu­tion be­cause right now there are dif­fer­ences be­tween banks in res­o­lu­tion of as­sets. These dif­fer­ences won’t be there if these as­sets are trans­ferred to a bad bank and man­aged pro­fes­sion­ally.”

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