172@29@17@103!~!172@29@0@53!~!|news|business|cnbc-tv18-comments|govt-thinksbad-bank-may-bebad-political-idea-heres-why-1001864.html!~!|controller|infinite_scroll_article.php
Moneycontrol
Financial Freedom Offer: Subscribe to Moneycontrol Pro and grab benefits worth ₹15,000/-
Last Updated : Feb 06, 2017 02:34 PM IST | Source: CNBC-TV18

Govt thinks a 'bad bank' may be a bad political idea: Here's why

The Economic Survey 2017, released earlier this month, revisited a financial idea that had been doing the rounds in India for the past year or so: that the government should set up something like a 'bad bank' to tackle the non-performing assets menace.

The Economic Survey 2017, released earlier this month, revisited a financial idea that had been doing the rounds in India for the past year or so: that the government should set up something like a 'bad bank' to tackle the non-performing assets menace.

However, sources have told CNBC-TV18 that the idea, which first originated in the United States following the 2008 financial crisis, is not finding too many takers in government circles, including the Prime Minister's Office.

The view is that setting up a bad bank may be counter to the image of the government, which has adopted a proactive approach against all types of illegal financial activities, including generation and hoarding of black money.

And as such, any perception that the government is keen to help promoters who have run up bad loans may hurt its image.

By definition, a bad bank is an institution that hobbles together bad loans of all financial institutions, freeing their balance sheets of toxic assets and giving them freedom to start lending afresh.

The loans on the bad bank's books are then treated separately -- by either selling them off at a discount or reconstructed later when the economy turns around.

But sources say the government is of the belief that the number of schemes the Reserve Bank of India has introduced to tame bad loans -- such as the S4A and SDR -- should be allowed to run their course.

Administratively too, making another change in the government and the RBI's current approach to handle NPAs may be difficult, sources say.
First Published on Feb 6, 2017 10:17 am
Sections