Amid high levels of stressed assets in the Indian banking system, voices for a creating a bad bank to take over these stressed assets are growing but the government may not warm up to the idea anytime soon as the proposal will cause serious fiscal strain, ET Now reported citing government sources.
Recently, the talk of creating a ‘bad bank’ has gained momentum to buy bad debts from lenders to restructure them, as it has now become imperative to tackle record stressed loans of $133 billion held by Indian banks by last September, or about 12.34% of their total loans. (Read: What is “bad bank”?)
Earlier, a top bureaucrat had emphasised that the government is intent on reducing the high levels of stressed assets in the Indian banking system on top priority and that all options are being considered. “… there is a credit problem and the NPA problem of banks as money they have lent is not coming back. The government is seriously considering (options),” PK Sinha, Cabinet Secretary to the Government of India, had said at an event, adding that he was to go to a meeting to discuss how to deal with the issue of NPAs.
You may also like to watch:
Sinha is reportedly heading a panel, which is working on finalizing the contours a one-time settlement scheme, including the amount of haircut the banks will take in case bad loans are sold during auctions. Several top office bearers have recently highlighted the government’s stand on freeing up the Indian banking system from the burden of bad debt, with almost all of them univocal that active measures are being taken.
Union Minister of State for Finance Santosh Kumar Gangwar had recently said, “Non-performing assets (NPAs) are not a subject to worry about too much. I think we will find a solution to the problem soon.” Asked about a time frame to resolve the issue, the minister did not give any specifics but said that the government will let it out soon.
Earlier last week, Finance Minister Arun Jaitley had said that NPAs in the banking sector were “one big challenge” that was adversely impacting investments in India. “This is a hurdle which we are now required to jump,” said Jaitley.
To resolve the problem, he said, “some precipitative action may be taken and this may involve some haircuts by the banks, which could be (on the basis of) bonafide commercial consideration”. There are several measures in the pipeline to resolve the NPA problem, he said, asserting that the problem of bad loans in the banking system is not “insurmountable” for a large economy like India as it is limited to only 20-30 big accounts.
While speaking on the issue of widespread NPAs, the Reserve Bank of India Governor Urjit Patel had pitched for having fewer but healthier banks by merging public sector lenders. “As many have pointed out, it is not clear that we need so many public sector banks. The system could be better off if they are consolidated into fewer but healthier banks,” Patel said.
Patel further said that RBI, India’s central bank, is facing a challenge from the large stress showing in the balance sheets of the banking sector. He said that in this regard, a series of measures have been taken in the past year on resolving the problem of the non-performing assets (NPAs), including completion of a comprehensive asset quality review of the banks.