‘India doesn’t need a bad bank ’

MUMBAI: There is no need for India to set up a new state-run fund manager to resolve the world’s highest stressed assets ratio as it already has institutions that can deal quickly with the problem, said a top government adviser.

Creating such an entity, a socalled “bad bank”, “can easily result in the loss of valuable time, perhaps as much as a year”, said Arvind Panagariya, vice-chairman of Niti Aayog, the government’s top policy planning body. “There are four or five reasonably-sized asset reconstruction companies. There is also a state bank-run ARC, which we can further strengthen. The latter can play a useful role in providing market discipline.”

As well as moving some larger non-performing assets (NPAs) out of banks, India also needs to recapitalise lenders and probably on a scale larger than previously anticipated, said Panagariya on Monday. Ridding bank balance sheets of bad loans is crucial to reviving credit growth and furthering Prime Minister Narendra Modi’s goal of creating more jobs in the US$2 trillion (RM8.65 trillion) economy.

“There is no shortcut, no quick and easy way out of this bad-loan mess. Hard choice is the right choice, here,” said Hatim Broachwala, a banking analyst at Nirmal Bang Institutional Equities, here. “Strengthening the ARCs further in terms of capital and regulatory frameworks and selling the assets to them seems to be the right solution.”

Stressed assets — that comprise bad loans, restructured debt and advances to companies that won’t be able to service the debt — have risen to about 16.6 per cent of total loans, government data showed. The proposal for a state-run bad bank to resolve