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Govt considers bad bank proposal despite doubts

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FinMin officials say an announcement could be made in the Budget
The Centre is likely to set up a “ bad bank” to take over the non- performing assets (NPAs) of the country’s financial institutions, and is examining a policy proposal paper on the matter.
As such, the setting up of an asset reconstruction company backed by the sovereign is a long- drawn process and these are still early days. Even then, senior government sources say Finance Minister Arun Jaitley might make an announcement in the upcoming Union Budget as part of his medium- term plans for the financial sector. There have been inter- ministerial discussions on the matter.
Earlier in February, Reserve Bank of India ( RBI) Governor Rajan had said there was “ no need” to set up a separate “ bad bank” to deal with stressed assets of public sector ( PSU) banks. “ PSU banks themselves have the backing of the government, so there is no need to create a new entity that has the backing of the government. The issue is now to clean it up,” he had said at an event in New Delhi.
Rajan had also said the pricing of assets of a government- owned bad bank could get entangled with the Comptroller and Auditor General or the Central Vigilance Commissioner.
“The government is examining the proposal of setting up a ‘ bad bank’, which will take over NPAs of public sector lenders and help them clean up their books. Deliberations with stakeholders are in the initial stages,” said an official.
The third quarter of financial year 2016 saw a sharp rise in banks’ NPAs because of stress in sectors like steel, power and infrastructure.
“The ( RBI) governor has made valid points, which will be taken on board. However, there is no rule that says if the regulator is opposed to something it should not or cannot be done. A decision will be taken considering all views,” the official added.
Business Standard, New Delhi, 19th Feb. 2016

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