Govt may create ’bad bank’ to deal with stressed assets of PSBs
Photo Credit: Reuters

India has set up a panel of experts to explore mechanisms for resolving the burgeoning bad debts plaguing its financial sector, the interim Finance Minister Piyush Goyal said on Friday.

Indian banks, already burdened by a near-record 9.5 trillion rupees ($141 billion) of soured loans as of last year, reported a further rise in bad loans in the March quarter after the Reserve Bank of India (RBI) withdrew half a dozen loan-restructuring schemes and tightened some rules.

The panel, which has been tasked to submit its recommendations in two weeks, will examine whether banks needed to set up an asset reconstruction company (ARC) or asset management company (AMC) to take up the stressed assets from banks’ balance sheets.

The committee is headed by Sunil Mehta non-executive chairman of Punjab National Bank, Goyal told a news conference.

“This group will consider whether such an arrangement will be good for the banking system and if such a suggestion is considered advisable it will also consider the modalities by which such an ARC and/or an AMC should be set up,” he said.

The 21 banks majority-owned by the Indian government, which account for two-thirds of banking assets in the country, hold close to 90 percent of soured loans.

Goyal said the government was committed to support all state-run banks and to strengthen their operations, after several lenders reported a jump in net losses last month.

“The government stands committed to support all 21 public sector banks,” he said.

After the meeting with bankers, Goyal said some lenders might consider creating oversight committees comprising external experts such as retired judges and regulators to help with faster decision making.

Goyal said the government and the central bank would make all efforts to bring state banks into a “good shape” so that they could once again become “an engine of economic growth”.

“The government of India believes that the autonomy of the banks be recognised,” Goyal said, adding the government has not “micromanaged banks”.

On potential mergers, he said the banks would have to take a final call on consolidation based on their experiences and needs.


Addressing allegations of mismanagement at the private lender ICICI Bank Ltd, Goyal said there was no cause for concern for stakeholders.

“ICICI Bank is a good bank. It has very robust processes and there is no cause for concern for any of the stakeholders of ICICI Bank,” he said.

ICICI, India’s third-biggest lender by assets, is battling allegations that its Chief Executive Chanda Kochhar had broken the bank’s code of conduct.

The bank has set up an inquiry into allegations raised by an anonymous whistleblower that Kochhar favoured Videocon Group in its lending practices.

Videocon’s founders had an investment in a renewable energy company founded by Kochhar’s husband. The bank rejected the accusations of nepotism in March and said the board had “full confidence and reposes full faith” in Kochhar.

Goyal said the bank’s internal and external inquiry committees would look into the allegations.

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