NEW DELHI: The government is exploring all options, including setting up a bad bank, in order to improve the health of the country’s banking sector, Economic Affairs Secretary Tarun Bajaj said on Friday. “We are looking at various options, including the option you mentioned (of bad bank), and it is still in the works...
The RBI has been asking us, and we ourselves also feel that we need to recapitalise. We have recapitalised to a large extent and this year too, we have kept some money for recapitalisation so that commitment is there...,” he said.
Bajaj was responding to a query during an event on whether the government would consider setting up a bad bank as a one-time measure to reduce the Non-Performing Assets burden of public sector banks.
The topic of a bad bank, one which would accumulate the bad debt of normal lenders, has been the subject of controversy for some time now, with many questioning the efficacy of such a measure.
In June, Chief Economic Adviser K V Subramanian had said that a bad bank may not be a potent option to address the NPA problem. Subramanian had also said that when a bank sells bad loans, it has to take a haircut because actual amount that can be expected from the bad asset is lower.
“So, when the bank has to sell that loan to a new institution, it has to take haircut... that will impact profit and loss, and that is one of the key aspects affecting selling of loans. So, creating a new structure may not be as potent in addressing the problem,” he had said.