Rs 800-900 billion needed to resolve large toxic loans, says Sunil Mehta

Rs 800-900 billion needed to resolve large toxic loans, says Sunil Mehta: SBI indicates it could put in Rs 100 billion for stressed asset resolution...

M G Warrier                              

July 4, 2018
Mainstream domestic assets

This refers to the report “Rs800-900bn needed to resolve large toxic loans, says Mehta” (Business Standard, July 4) by Abhijit Lele. The immediate media response to the Mehta Panel report on NPAs resolution is comforting. Last three years have been stressful for banks, government and the banking regulator.
Not only because the efforts to cleanse the financial system from various chronic ills resulted in several weaknesses of the system surfacing or the rising demands on budgetary allocations to support ailing banks. The period also brought to light deficiencies and vulnerabilities in the management of institutions across public and private sectors. During this period the institutional system in the Indian Financial Sector has proved its resilience to withstand pressure and has retained public trust.
Banking being solely dependent on monetary resources, emphasis on ensuring capital adequacy, a reasonable growth in deposits base and flow of credit is natural. Sunil Mehta has arrived at a tentative figure of Rs800-900bn to resolve large toxic loans. There will be other demands, besides the likelihood of this figure also rising higher.
Extraordinary situations call for extraordinary solutions. Taking a clue from Mehta’s observation that “…the returns on stressed assets are quite different from biotechnology, IT and private equity funds,…”, GOI should consider tapping ‘idle domestic assets’ for long-term investment in the banking sector.
Several individuals and organizations may be holding assets in cash, gold and real estate, a part of which, if allowed to be mainstreamed and invested may partly cover the huge funding need at this juncture. Of course, creating national consensus and building public trust will be an uphill task.

M G Warrier, Mumbai


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