Working to limit moral hazard in bad bank: IBA

Indian Banks Associa tion Chairman and Union Bank of India Managing Director and Chief Ex ecutive Of ficer Rajkiran Rai today said sufficient pr ecautions ar e in place to ensur e the pr oposed bad bank w ould not lead to cases of lenders dumping their to xic assets on its books.

In the Union Budg et f or the next financial y ear, Finance Minister Nir mala Sitharaman announced the creation of a bad bank to deal with stressed assets in the banking sector . T his bad bank would involve an asset r econstruction company and an allied asset management company.

Subsequently, it was clarified the banks w ould themselves pr omote this entity and the g overnment would not infuse any capital.

However, on W ednesday, Informist r eported the R eserve Bank of India had recommended a guarantee for the security r eceipts that the asset r econstruction compan y would issue, thus limiting additional provisioning by banks.

“(If) banks can par k their NPAs with this ARC and get away with tha t, onl y then there is a moral hazar d. Sufficient pr ecautions ar e taken so tha t this doesn ’t happen. Y ou need not be considered so tha t this doesn’t happen. So ther e is no moral hazard,” Rai said.