Union Budget 2021: Asset reconstruction company, AMC to manage NPAs
The new entities will help to deal with non-performing assets (NPAs) which may see a surge once regulatory forbearance to deal with the impact of Covid-19 is withdrawn.
Fulfilling a longtime demand of the banking sector, the finance minister announced that the government will set up an asset reconstruction and management company for stressed assets to take over bad loans. This is being considered as the government's version of bad bank.
Various analysts had suggested that in a couple of years, the proportion of stressed assets in the banking system could jump and therefore a need for a government backed stress assets manager was felt.
The new entities will help to deal with non-performing assets (NPAs) which may see a surge once regulatory forbearance to deal with the impact of Covid-19 is withdrawn.
"An asset reconstruction company limited and asset management Company would be set up to consolidate and take over the existing stressed debt and then manage and dispose of the assets to Alternate Investment Funds and other potential investors for eventual value realization," Sitharaman said.
In a report released by Reserve Bank of India (RBI), it was said that banks' gross non-performing assets may rise to 13.5 per cent by September 2021, from 7.5 per cent in September 2020 under the baseline scenario.
Last month, RBI governor Shaktikanta Das had also indicated that the central bank can consider the idea of a bad bank to tackle NPAs.
"If there's a proposal to set up a bad bank, the RBI will look at it. We have regulatory guidelines for asset reconstruction companies," Das had said.
The Economic Survey which was tabled on Friday also indicated that a fresh asset quality review (AQR) will be needed once the ongoing forbearances related to Covid-19 come to an end.
Finance minister Nirmala Sitharaman also announced strategic divestment in 2 PSU banks and one general insurance firm. Sitharaman said that NITI Aayog will be asked to work on next list of central public sector companies for disinvestment. She added that LIC IPO will be brought in FY22. BPCL, Air India, Shipping Corp, Container Corp and other disinvestments will be completed in 2021-22.
(with agency inputs)