View: How good is a bad bank?
The ultimate goal, however, should be to create a market for stressed loans so that banks can easily jettison the burden of bad loans, take a quick hit on their profits and move on with their business.
Synopsis
One has to factor in the enormous gains that accrue from enabling bad loan-strapped banks to function smoothly. That said, when policymakers talk of the imperative of making the bad bank a time-bound experiment, one must ask how this time period will be determined. This decision is easy when it comes to buying bad loans.
How to make India’s bad bank workable
Many lenders have accumulated a large volume of stressed assets over the years. The NPA problem needs an urgent fix.Premium
9 min read
Ananth Narayan
Past experiments have failed because of design issues. Malaysia’s ‘Danaharta’ shows a viable way ahead
If stressed loans are transferred at too low a value, the recovery might deliver supernormal profits to buyers. This could be especially problematic if the buyers are in the private sector
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MUMBAI :
Given the large overhang of non-performing assets in our financial services ecosystem, there is a strong case for a one-time clean-up via a “bad bank Asset Reconstruction Company (ARC), as announced in this year’s Union Budget.
Mumbai: Challenges posed by the Covid 19 pandemic this fiscal is likely to increase stressed loans for non-banking financial companies (NBFCs) to the highest in 12 years, Crisil said.
The rating agency expects stressed loans to rise to between Rs 1.5 lakh crore-Rs 1.8 lakh crore or 6% to 7.5% of the assets under management (AUM), by the end of the current fiscal ending March 2021, up from about 4% a year earlier, led by a sharp increase in stress in unsecured personal loans, real esate financing and loans to micro and small enterprises.
Crisil expects gross non performing assets (NPAs) from personal loans to increase to 9.5% to 10% of loans in March 2021 from 2.2% a year earlier. Similarly NPAs from real estate financing could quadruple to 15% to 20% from 4.5% in March 2020 while 7.5% to 8% loans to MSMEs could slip into NPAs from 3.4% as of March 2020.