ARCs may Get a Push as Bad Bank Put on Hold
Govt to explore giving more space to asset-reconstruction & state-run cos to take over stressed assets; meetings with stakeholders likely
New Delhi: The government will look to give more space to asset-reconstruction and state-run companies to take over stressed assets instead of setting up a bad bank, an idea that gained currency after the Economic Survey suggested it to help banks get rid of their biggest burden.
“There are a number of initiatives that are being taken to resolve the stressed assets issue. In this (year’s) Budget, more measures have been taken to strengthen asset reconstruction companies. As of now, there is no need for a bad bank,” a senior financial ministry official said.
The government is expected to hold meetings with all stakeholders to assess the dispute resolution process. The Economic Survey suggested the setting up of a public sector asset rehabilitation agency, or bad bank, to buy nonperforming assets from state-run banks. In its monetary policy review on February 8, the Reserve Bank of India said it was open to such an idea.
The level of stressed assets is seen at over 20% of the gross advances of banks. Bad loans have been the biggest drag on the performance of the state-run banks in the recent years. Getting these out of the books will allow them to focus more or lending.
But many, including central bank officials, are cautious on their comments about the success of a bad bank, including on how to find buyers for the NPAs such an entity would take over from banks.
A second government official said globally, bad banks have not been very successful and in India as well the experiment with Stressed Asset Stabilization Fund (SASF) has not been encouraging.
Stressed assets of around .₹ 9,000 crore were transferred into SASF when IDBI was converted into a bank. This trust has recovered .₹ 4,500 crore and the remaining valuation of the block is only .₹ 400 crore. “We do not want a situation where the onus of resolving such impaired accounts falls on the government alone. If we all bad banks have been a success story
for taking over IDBI’s bad loans also struggling
wants ARCs, public sector companies to take lead will look at a bad bank, we will have to see that it has substantial participation from all stakeholders,” the official said.
Earlier this month, during an interaction with industry associations, finance minister Arun Jaitley also said that although the government would consider the suggestion for a bad bank, it was not in favour of a bad loan situation supported only through Budget.
Private asset reconstruction companies have not been successful in resolving bad debt, the Economic Survey 2016-17 had noted. A professionally run central agency, with government backing, could overcome the coordination and political issues that have impeded its progress, it added.
The government had earlier explored the idea of setting up a National Asset Management Company that could act as a nodal agency to deal with the problem of bad loans. “That process is already on through various channels, including the Banks Board Bureau (BBB),” said the second official.
GLOBALLY, NOT SASF SET UP