Letters to the editor dated March 17, 2021

This refers to ‘How to make good assets with a 'Bad Bank'’(March 17). While among others, the health of financial intermediaries is crucial in driving economic growth and social development, it is also imperative to sustain the quality and value of the assets created by the lenders.

However, in the course of the banking business, particularly pertaining to the deployment of funds, the transformation of good money or assets to stressed and bad assets in large numbers is crippling credit expansion and eventually the growth of economic activities. It is important to implement fresh reforms to eliminate the creation of bad assets. At this juncture, the lenders, the regulator and policymakers have to further strengthen the execution of economic reforms and oversight.

The creation of a new Bad Bank is essential to maintain the lending capacity of banks and, thereby, ensure smooth flow of institutional credit to all segments of the economy. The proposed ARC must, however, be financially robust enough to pay for the bad assets without lag.

Changanacherry

Apropos ‘Deny SPACe’ ( March 17), the new model of investment in shell companies floated by blank-cheque firms to acquire companies through the IPO route, though followed globally on large scale, is too early for India, with poor levels of investor intelligence in such deals.

Many sops are proposed to attract more global investments through the off-shore centre at GIFT IFSC, primarily keeping in mind the huge PSU divestment programme by opening up FDI in more sectors. However, in the absence of proper regulatory mechanism for investor protection and operational guidelines, experimenting with such complex deals through the newly started IFSC would be a credibility risk and any failure on account of improper handling or misuse, may permanently impair the Centre’s chances of attracting international investors to operate through the centre.

Bengaluru

While there is no argument that the regulator needs to think twice about allowing SPACs, taking too rigid a stance will prove to be counter-productive. It’s unlikely that GIFT ISC will take off in a big way if the operations there appear to be managed too rigidly by the regulator. As in the case of all other financial instruments, SPAC issues too can be permitted initially up to a certain issue size and the regulatory framework can be put in place on an as-needed basis.

Chennai

This refers to ‘‘File and forget’ charade’ (March 18). The government’s attempt to window-dress the disinvestment of PSUs is not only unethical but illegitimate. Directing certain firms to bid for PSUs despite their disinclination and even when they may not have the wherewithal to bid amounts to gaming its own system. It also amounts to promotion of cartelisation as the government may advise a handful of bidders to quote the price as per its direction. Despite these questionable measures, privatisation of BPCL and Air India is coming a cropper.

Noida

The ‘ICAI prescribing standards for forensic investigations’ (March, 17) is a welcome move, given the alarming rise in the number of ‘accounting, financial and loan irregularities’ committed by corporates, with banks, especially the PSBs, bearing the brunt.

The RBI mandates forensic audit in banks whenever an advance above a certain threshold turns into NPA to ascertain the reasons thereof. Based on the audit findings, banks take a call on whether the borrower is a wilful defaulter or a fraud and decide upon further course of action in recovering their dues. Though this makes the whole exercise appear like a post-mortem, by converting every forensic report into a case study and sharing the same among all banks, the RBI could prevent recurrence of similar events.

Chennai

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