With reference to “Good banks and a bad bank” (March 27), the urgency in reversing the rise in stressed assets with banks is universally admitted without any reservation. When it comes to solutions, there can be, and are, differences in perception of responsibilities and, thus, methods to tackle the problem. In any case, it is late to think of a surgical approach isolating sectors such as infrastructure, industries or farm loans, and any solution will have to have the health of banks in view. The bad bank idea, mooted last year, didn’t find favour with then Reserve Bank of India (RBI) Governor Raghuram Rajan. The change of guard together with the compulsions arising from the severity of bad loans plaguing the system, which has not been responding to normal “treatment”, helped the media and analysts to make a second attempt. A theoretical approach with some forceful arguments in favour of sucking out RBI’s reserves to fund institutionalisation of bad debts, squeezed into Economic Survey 2016-17, looked too good.
Banks with huge amounts of stressed assets are also big enough to do whatever a newly constituted institution can do to make the non-performing assets perform or close the accounts after whatever part is recoverable. With appropriate legislative and legal support from the Centre in the same manner banks form consortiums to lend to large projects; banks can make joint efforts to pool resources and make joint recovery efforts. Such efforts will reduce the chances of borrowers shifting from one bank to another for softer treatment in regard to financial discipline.
Like the disinclination to repay unleashed by agricultural loan waivers, the very concept of a Centre-owned “bad bank” does create the problem of moral hazard as it creates incentives for banks to be reckless. The responsibility to recover or “provide for” loans disbursed going bad should remain with the lender.
M G Warrier Mumbai
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