‘Bad bank’ idea is back! Exactly what it is that Modi government mulling to fix bad loans

'Bad bank' idea is back! What it is that Modi government mulling to resolve bad loans The idea of bad banks is where a business or bank might buy up NPAs of all other banks or banks.(Image: Reuters)Finance Minister Piyush Goyal on Friday stated that a committee will released its recommendations on setting up an asset reconstruction or a possession management company for faster resolution of bad loans-- a principle that's comparable to the idea of 'bad bank'. This concept has been drifting around for rather some time-- as well as made it to the Economic Survey Report 2017. The idea of bad bank is where a company or bank could buy up NPAs of all other banks or banks and help clean-up their balance-sheet.

The country is currently reeling under NPAs (non-performing assets) worth about Rs 9 lakh crore, which the government is aiming to deal with utilizing multiple device: Bank recapitalisation, Insolvency and Bankruptcy Law etc. Piyush Goyal on Friday informed press reporters that a committee will think about whether such a plan (comparable to bad bank) will benefit the banking system. He made the announcement after a meeting with public sector banks from the western and southern region on the banking crisis.In the Economic

Study Report 2017, Chief Economic Advisor Arvind Subramanian echoed Deputy RBI Governor Viral Acharya's technique to take on bad loans. Arvind Subramanian said that there was an immediate requirement for India to create a' bad bank'that might purchase up bad financial obligations from lending institutions to restructure them.The concept that was proposed then was of the production of'bad bank 'as a centralised firm that would take control of the largest and most tough stressed out loans from public sector banks in order to assist clean their balance sheets, and would take politically difficult choices to lower debt, offering a motivation to further financing to spur economic activity. The Economic Study gave it a name: Public Sector Asset Rehab Firm(PARA). Nevertheless, the idea had its own critics, consisting of previous RBI guv< a href= http://www.financialexpress.com/tag/raghuram-rajan/ target =_ blank > Raghuram Rajan, who stated that it would merely indicate the transfer of NPAs from one entity to other. The'Twin Balance Sheet'(TBS)problem needs focus to be on debt-restructuring. In February, the Reserve Bank of India(RBI)scrapped over a lots debt-restructuring processes and replaced them with one structure that set a rigorous timeline for asset resolution in line with newly adopted IBC law. The IBC law is taking its course with 2 of the greatest bad loans accounts fixed and rest at various phases of resolution.The government, in October last year, announced an unmatched Rs 2.11 lakh crore bank recapitalisation strategy, of which Rs 88,000 crore was infused into public sector banks in January. The government seemed non-committal on the timeline of launching the 2nd tranche of the recap plan. On being asked about the need for more fund infusion into the PSU banks, Piyush Goyal stated on Friday that it was too early to judge if such a requirement existed.In wake of Rs 13,000 crore fraud at the Punjab National Bank (PNB)and greater NPA provisioning resulting in losses in the PSU Banks, both Moody's and Fitch said that the Rs 2.11 lakh crore would not suffice for the banking system.