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The government should focus on further empowering bank boards rather than look at setting up a ‘bad bank’ to help tide over the current bad loans mess, Sunil Kanoria, President, Assocham, an apex industry body, said.
“I don’t think bad bank is a good idea,” Kanoria told BusinessLine in an interview here.
A “bad bank” is one which takes over bad loans from commercial banks so as to clean up their books.
“By creating a bad bank or doing a corporate debt restructuring (CDR) or SDR, you are not bringing a solution. You are only creating a good balance sheet. You have to solve the problem on the ground,” Kanoria said
Kanoria’s remarks are significant as it comes on the heels of RBI Governor Urjit Patel’s statement that the central bank will be “firm and pragmatic” in dealing with the problem of stressed assets in banks.
After aggressively pushing banks for two years to come clean on their bad loan situation, the RBI had in its monetary policy review signalled a more conciliatory approach towards dealing with the situation.
Many economy watchers see this “pragmatic approach” as a change of stance.
The idea of “bad bank” is doing the rounds among policy-makers with Finance Secretary Ashok Lavasa reportedly stating a few days back — post-RBI policy announcement — that it could be a possible solution.
Kanoria felt that further strengthening of bank boards, bringing more professionals on the boards, and providing reasonable pay will be the right approach.
“Let us have a concept of joint decisions. Let the management of the bank propose a solution for stressed assets and you approve it. Deflecting the decision-making to an independent set of people outside the board is not the right approach.”
The Finance Ministry has been endorsing an approach where decisions on tackling stressed assets are endorsed by a panel outside the board so that queries are not raised in future by investigating agencies over the commercial impact of those decisions.
Public sector bankers have been fearing the 3Cs — CAG, CBI and CVC — and have been cautious in decision-making with regard to dealing with stressed assets.
Cut down on schemes Kanoria, who is expected to meet the RBI Governor this fortnight, wants the central bank to stop creating schemes after schemes.
“I want to tell the RBI Governor... don’t bother about creating schemes. Leave that to the banks. Empower the banks. The RBI can protect the financial system in different other ways like placing restrictions on dividend payouts for banks facing difficult financial conditions, etc,” Kanoria added.
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