The government is looking at a proposal to set up a bank or a company to deal with the burgeoning bad loans of state-owned banks, even as the views on the issue are “vertically divided”.
The government is looking at a proposal to set up a bank or a company to deal with the burgeoning bad loans of state-owned banks, even as the views on the issue are “vertically divided”.
“We have discussed it (setting up an asset reconstruction company), but you see the problem so far is that opinions are almost vertically divided on the issue,” a senior government official said.
According to some bankers, setting up a ‘bad bank’ would be a sound thing to do given the current situation where PSU banks are burdened with mounting non-performing assets or bad loans.
“As a concept it (bad loan bank) is good. It has to be structured in such a way that it efficiently functions. It’s not a bad idea given the current times,” Punjab National Bank managing director Usha Ananthasubramanian said.
Few bankers, on the other hand, have also expressed the concern that banks would tend to shift their stressed assets to such institution and it may lead to laxity on part of the lenders.
RBI governor Raghuram Rajan had said recently that there was “no need” to set up a separate bad bank to deal with stressed assets of public sector lenders.
“In my mind, the banks are already trying work on their balance sheets... Public sector 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 said.
Dr Rajan had also said that the pricing of assets of a government-owned bad bank could get entangled with the Comptroller and Auditor General or the Central Vigilance Commissioner.
Finance minister Arun Jaitley had said last week that the government is considering more steps to empower banks to recover bad loans and the problem will be contained soon.
