NEW DELHI: The Finance Ministry is once again looking at a proposal to set up a `bad bank’ as a way to address the problem of rising NPA levels in state-run banks.
Top officials said the proposal is still being studied though both bankers and industry chambers are lobbying for it.
The proposal for the bankwhich will function a bit differently from a normal asset reconstruction company-that is doing the rounds calls for setting it up with a share capi tal of around Rs 10,000 crore.
Its job will be to buy up bad loans from scheduled banks at book value.
Behind the proposal is the lurking fear that NPAs are set to go up once the after effects of the interest moratorium, which ended in August, starts telling on industry.
With several sectors of the economy working at below normal capacity, the ability of many firms to repay loans are seen as severely challenged, especially those that have borne the brunt of Covidrelated restrictions.
Though Indian banks have seen their gross non-performing assets (GNPAs) come down to 7.7 per cent in July-September as against 9.3 per cent for the same period last year, analysts say that this was because of the moratorium.
A report by Care Ratings says “the Gross NPAs would have been around 0.5 per cent to 0.6 per cent higher had these (moratorium) accounts been classified as NPAs.”
The rating agency said that wi th the moratorium offered by banks ending, the after-effect and impact on banks’ balance sheets may be witnessed in the coming months of the financial year.
However, there are many detractors of the bad bank scheme.
Several economists have argued that it would simply transfer the bad loan problem to another entity, leaving banks to continue making poor loan decisions in the future, sometimes under pressure from the political leadership.
Officials said that besides the Confederation of Indian Industry, which has called for multiple bad banks, former RBI Governor Raghuram Rajan has also suggested such a measure in a paper co-authored with his former deputy Viral Acharya.
The two had also suggested the privatization of a few select state-run banks and the dilution of the role of the department of financial services in Finance Ministry.
Moratorium dilemma Gross NPAs
Would have been around 0.5- 0.6% higher if moratorium were made NPAs.
Care Ratings says the aftereffect on banks’ balance sheets will show in the coming months.