Wednesday, 29 June, 2022
Home50-Word EditSetting up bad bank to fix NPA problem is a bad idea....

Setting up bad bank to fix NPA problem is a bad idea. It’s a temporary solution & just bad economics

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The idea of establishing a bad bank to address mounting NPAs is gaining currency and wrongly so. It is a temporary fix and cannot address deep-rooted problems of PSU banks. Allowing bankruptcy process to work efficiently, permitting new banks, including foreign-owned ones, are better options. Bad bank is bad economics.

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  1. The sheer volume of NPAs in the system, which will swell further due to the pandemic, coupled with the percentage of sacrifice lenders will have to sustain, make the setting up of a bad bank impractical. For that matter, few Indian business houses have the financial capacity to bid for stressed assets, the way Piramals have for DHFL. Reliance has deleveraged, something Adanis may be experimenting with as well. Risk appetite is low. 2. As the Edit suggests, issue of fresh licences, creating vibrant new institutions, is the way forward. No aversion to foreign banks. The government should take enlightened, long term decisions, else the inadequacies of the banking system will become a serious constraint to achieving high growth.

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