NEW DELHI: Taking forward the Reserve Bank of India’s suggestion for a state-owned asset reconstruction company, or bad bank, to address the stressed exposures of the banking sector, Chief Economic Adviser Arvind Subramanian said such an institution should be set up quickly.
“Essentially, there seems like a growing convergence towards the idea. The broad idea that we should do like this is gaining traction,” he said, adding that delaying a cleanup would further reduce private-sector investment and make the problem worse for India.
Terming mounting non-performing assets a challenge to the economy, he said, “There is no one thing that you can do immediately. It’s a very complicated problem.”
On Tuesday, RBI’s new deputy governor Viral Acharya had said that India’s failure to tackle bad loans was the result of a piecemeal approach that had given “all discretion” to lenders.
Subramanian said, “The government is looking at it very closely… the more you delay the problem, the more private investment will remain weak.”
According to some estimates, banks in India had record stressed loans of $133 billion, or 12.34 percent of their total loans, as of last September.
About two dozen state-owned lenders have an even higher stressed-loan ratio of 15.88 per cent, according to data compiled by India’s central bank.
Meanwhile, the Public Accounts Committee (PAC) of Parliament has reportedly asked four banks — Indian Bank, Indian Overseas Bank, Allahabad Bank and UCO Bank about their major defaulters and the action being taken to recover the money.