The government does not have any immediate plans to create a bad bank to resolve the bad loans issue, Niti Aayog Vice Chairman Arvind Panagariya said on Monday. “Immediately, I don’t see any plans to create a bad bank. In the three-year agenda, we suggested that let us do it through private sector asset reconstruction companies (ARCs) instead of bad bank,” Panagariya told BTVi in an interview.
“In the government, a new institution takes quite a while and we could have easily lost another year before any action could be taken. If you bring the bad bank as a public sector entity, then you first need to establish a public sector entity that could easily take a year,” he said.
Referring to the NPA ordinance which empowers Reserve Bank of India (RBI) to direct banks to initiate insolvency process against any defaulter, he said that it has opened the doors to genuine resolution of this problem. “Each of these non-performing assets will now be put on a path to resolution. There is no other way to resolve the problem,” Panagariya said.
He said that the first set of 45-50 bad assets are likely to be taken up for resolution in the next six months. “Not that they will be resolved, but at least they will be taken out of the books of banks,” he added.
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Hinting that the government needs to increase the amount for bank recapitalisation beyond Rs 70,000 crore allocated for four years, he said: “We do a three-year fiscal framework for the country, which is a bit more ambitious than Rs 70,000 crore currently allocated. Fiscally, it is feasible to move up that figure a bit.”
Panagariya said that eventually lot of recapitalisation needs to happen, but the banks too need to take initiative.
“The sequencing needs to be right. We do need the banks to come to the table first. It will make banks complacent otherwise,” he said.