Recommendation to set up special banks to solve the problem of bad loans

Mumbai, Ta. 21 December 2020, Monday

The Confederation of Indian Industry (CII) has urged the government to set up special banks to handle the increased bad loans of the country's public sector banks during the coronavirus epidemic and to allow foreign investors to buy them to solve bad loans.

In a pre-budget instruction to the finance ministry, the CIA said that market-based price research mechanisms remain essential for resolving assets under stress in times of epidemics.

With huge levels of liquidity both globally and domestically, many bad banks will be able to handle the issue in a transparent manner and reverse the credit cycle in the country, said CII President Uday Kotke.

In the banking sector, bad loans or non-performing assets are usually sold to asset reconstruction companies, but since such companies have limited capital, such loans are sold through security receipts. In such cases, banks get payment only on recovery of money.

But the recovery rate in the country is very low and banks are not particularly keen on selling through securities receipts. Bad banks buy bad loans at market prices. The CIA has also sought to allow foreign institutional investors and alternative investment funds to buy NPAs.