A bad idea kept in ventilator

A bad idea kept alive

This refers to the story “‘Can ARCs ease banks’ burden?” (Big story, The Hindu Business Line, July 2) by Radhika Merwin. Bureaucracy has its own ways of getting things done in its way and this is the latest example. The report is indicative of how vested interests keep certain ideas floating until they could be pushed through.
As stated the idea of ‘Bad bank’ was mooted in Economic Survey 2016-17, then called ‘Public Assets Rehabilitation Agency’ (PARA). All the reasons for not going ahead with institutionalizing bad assets remain valid today except that the idea now gets support from badly managed banks facing the threat of merger which expects to get another lease of life by transferring a portion of stressed assets to the new entity.
In India, fortunately, big public sector banks which have the major portion of NPAs are big enough to professionally manage their own affairs, if functional parity in management and conduct of business is allowed which their counterparts in the private sector enjoy. The proposed institutional arrangement for handling stressed assets of the banking system has built-in features that will be harmful to the financial sector in the long run.
Besides acting as a disincentive for professionalizing credit appraisal, credit delivery/monitoring and recovery systems, which process is on track now, creating a separate ‘pocket’ for decaying assets can further weaken the supervisory and regulatory bodies in the financial sector for obvious reasons.
In the first place, outsourcing of responsibilities at certain layers of credit appraisal or super-imposing decisions using ownership rights through back door have already contributed to the present NPA situation in PSBs. Shifting the responsibility for recovery from the lender to another agency goes against the principles of best banking practices.
M G Warrier, Mumbai

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