Govt considers 'bad bank' proposal despite doubts

Govt considers 'bad bank' proposal despite doubts: FinMin officials say an announcement could be made in the Budget



My VIEW:

Going by past experience, once central government gets fixed on an idea, all stakeholders will support it for different reasons. A new institution is always welcomed by the under-employed retiring/retired bureaucrats in whose hands the implementation of new ideas land even today. It means a number of new posts, huge resources and a long ‘gestation period’ for accountability to surface.

Reserve Bank of India (RBI) Governor Raghuram Rajan had, long back, expressed the view that the concept of a good bank and bad bank may not be relevant for India since much of the assets backing the banks’ loans are viable or can be made viable. He dwelt on the subject in some detail while delivering the CK Prahlad memorial lecture last time. He said that given most of the assets are viable, it would make sense for the banks themselves to recover the dues while adding that in cases where loans are not priced appropriately when transferred to the bad bank, it could create issues. Thus, Dr Rajan was in favour of helping the banks clean up their balance sheets, recognising it as their responsibility.

At a time when several new players are preparing to enter the banking business, the message that will go out to the public by creating an entity to handle stressed assets alone at a cost can be disastrous to the trust on which the financial sector is dependant for survival.

M G Warrier, Mumbai