‘In­dia doesn’t need a bad bank ’

New Straits Times - - Business -

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

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