The government should empower the boards of the public sector banks and form an “asset revival bank” to deal with bad assets, Assocham said here on Thursday.
The asset revival bank, a special purpose vehicle (SPV), can lay guidelines for the lenders to take “haircuts” to cut the losses in the sectors in distress, the Associated Chambers of Commerce and Industry of India (Assocham) said in a statement.
“While the SPV would set the rules of the game, the bank boards should be given powers to decide on the quantum of the waiver of compounding of interests which has led to some of the bad loans to many times over the principal amount,” it said in the statement.
The government needs to instil confidence in the bankers to take decisions on restructuring of loans in stressed sectors like steel, construction and power, it added.
Assocham said that the asset revival bank should be kept outside the purview of Comptroller and Auditor General (CAG), Central Vigilance Commission and Central Bureau of Investigation (CBI).
“So far as taking a call on the NPAs or writing them off or cleaning the balance sheets are concerned, these have become a clear no-no because of the fear of being hounded even after retirement,” Assocham said.
In a growing economy where the total loan portfolio or the book size of the banks needs to grow, writing off Rs 12,000-14,000 crore bad loans in a year should not raise eyebrows and be treated as part of a normal business risks, it said.
“This is surely not to suggest to let go fraudsters, though much more clarity is needed as to who qualifies to be a wilful defaulter,” the statement said.
Businesses which have gone bad due to economic slowdown need hand holding. It could be in term of restructuring loans or interest rate moratorium that will help them sustain the bad phase and once there is uptick they will be able to pay loan back, it said.
The Reserve Bank of India (RBI) needs to provide a mechanism to revive the industry by incentivising the banks to deal with the NPAs in an effective manner, it added.