Industry body Confederation of Indian Industry (CII) on Sunday said it has urged the government to consider creation of multiple bad banks to address the adverse impact of non-performing assets (NPAs) accumulated by public sector banks in the recent past, that got further accentuated during the pandemic.
The CII in its pre-budget memorandum recommended that the government consider enabling Foreign Portfolio Investors (FPIs) and Alternative Investment Funds (AIFs) to purchase NPAs.
“In the aftermath of Covid, it is important to find a resolution mechanism through a market determined price discovery. With huge liquidity both globally and domestically, multiple bad banks can address this issue in a transparent manner and get the credit cycle back in action,” CII President Uday Kotak said.
A robust market-based mechanism will encourage public sector banks (PSBs) to sell their bad loans without fear of questions being raised later.
With cleaner balance sheets, PSBs should be able to raise capital from the market, obviating the need for recapitalisation by government, a bill which the government can ill afford to foot at this point of time, CII said.
Economic Survey 2017 had also suggested creation of a bad bank called Public Sector Asset Rehabilitation Agency (PARA) to help tide over the problem of stressed assets.
{{/usCountry}}Economic Survey 2017 had also suggested creation of a bad bank called Public Sector Asset Rehabilitation Agency (PARA) to help tide over the problem of stressed assets.
{{/usCountry}}Lenders have been making a case for setting up a bad bank to ease pressure of bad loans on them in these difficult times.
Currently, banks sell their bad loans to asset reconstruction companies as per the prudent norms of the Reserve Bank of India.
“As the economy recovers, credit demand from industry will expand. Banks need to gear up to meet this demand. Market mechanism based multiple bad banks can help clean up banks’ balance sheets, encouraging them to lend,” CII stated.
The government had put in ₹80,000 crore in bank recapitalisation in FY18, ₹1.08 lakh crore in FY19 and ₹70,000 crore in FY20.
In September this year, the Parliament approved another ₹20,000 crore capital infusion into PSBs.