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

The Economic Times - - Economy: Macro, Micro & More - Dheeraj.Ti­wari@ times­

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.


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