RBI deputy governor Viral Acharya has said that a piece-by-piece approach won’t fix the NPA problem which needs an urgent solution.

Union Finance, Defence and Corporate Affairs Minister Arun Jaitley said that resolution of banks’ Non Performing Assets (NPAs) remain a challenge even though the rate of increase of such bad loans had slowed in the last quarter of the current financial year.

The idea of a bad bank for such assets is still under discussion, Mr. Jaitley said, even as the Centre is considering multiplication of the oversight committee mechanism set up by RBI to process cases referred by different banks.

Chief Economic Advisor (CEA) Arvind Subramanian, who had floated the idea of a bad bank to takeover stressed assets in the Economic Survey for 2016-17, pointed out earlier this week that the government must sometimes bail out large corporate borrowers even at the risk of being charged of crony capitalism in order to surmount the NPA problem.

Reserve Bank of India (RBI) deputy governor Viral Acharya has said that a piece-by-piece approach won’t fix the NPA problem which needs an urgent solution.

Public debate

“Several possible alternatives exist and the issue is being debated on public platforms,” the finance minister said about the bad bank proposal in a consultative committee meeting with MPs on the NPAs.

A few MPs urged the Centre must ‘go ahead’ and establish the Public Sector Asset Rehabilitation Agency (PARA) mooted by the CEA, but said such an agency should only consider those NPAs where sector specific reforms do not help, even called for taking tough action against wilful defaulters, including naming and shaming them.

“The core problem of NPAs is with very large corporates, though few in numbers, predominantly in the steel, power, infrastructure and textile sectors. They had expanded their capacity during the boom period (2003-08), but could not face the onslaught of global financial crisis and consequent slowdown thereafter,” Mr. Jaitley said.

The government, he said, is taking sector-specific measures to deal with bad loans and the steel sector is on the recovery path, while several decisions have been taken to help resolve problems faced in the infrastructure, power and textile sectors. A presentation was made to the MPs on various measures undertaken by the Government and the Reserve Bank of India (RBI) for tackling NPAs.

‘Criminal action’

“Apart from recovery proceedings, criminal action must be taken against the big wilful defaulters and their photographs may also be published. A member also suggested that under the SARFAESI (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest) Act, the focus should be on catching big wilful defaulters,” according to an official statement about MPs’ suggestions.

Taking cognizance of investigative agencies’ actions against bankers for some bad loans, a few MPs stressed on the need to restore the confidence of bankers and enable them to take commercially viable as well as rational decisions.

“One of the members said that the Chief Vigilance Officer of the Public Sector Bank be made a part of the bank’s credit committee and the Board of the bank should take a call first about the decisions taken by their officials rather than investigating agencies directly acting on the basis of their own information,” according to a finance ministry statement.

Some members also suggested allowing state governments to bid for stressed assets and keeping a close eye on the functioning of private asset reconstruction companies, whose performance ‘is not up to the mark in many cases.