Govt floats idea of launching bank to deal with bad loans

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,” said a senior Government official.

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 (NPAs) or bad loans. “As a concept it (bad 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 (PNB) Managing Director Usha Ananthasubramanian said.

A 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 the part of lenders. Reserve Bank of India (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 had said.

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.

“The bankruptcy law is under active consideration. The government is also considering some further steps to empower banks to be in a position to recover these monies (non- performing assets). I think it’s a problem which will soon come under control,” he had said.

Observing that there is a problem of NPAs, he had said: “These are the loans, which have earlier in point of time given by these banks and as a part of prudent policy it has been considered the balance sheets should be transparent. The banks are going to take all steps possible to recover the loans from debtors.” 

He had said that the Reserve Bank of India through various policies has empowered banks to recover NPAs. As on September, the gross NPAs of PSU lenders have increased to Rs 3.01 lakh crore as against Rs 2.67 lakh crore in March.