Letter to BS: It may be prudent to wait before setting up the bad bank

This refers to “Bad bank may start with Rs 60K-crore NPAs; govt may put in Rs 10K crore” (May 12). While it is a good idea to have a bad bank, but certain factors need consideration. Firstly, there must be a well-laid policy of putting stressed assets in the bad bank. Since it will have pre-pandemic as well as post-pandemic stressed assets in it, setting up this bank should not provide an opportunity to push stressed assets borne out of reckless lending or mala fide lending without carefully verifying them. The eagerness of some bankers to quickly shift these assets should be carefully studied. The boards of banks should form a committee to look into this aspect. In other words, this bank should not be a convenient tool to brush the obvious dirt under the carpet. After all, the cost of such assets in their original bank is borne by depositors while the bad bank will be funded by public money or income tax payers.

Second, we are in the initial phase of the pandemic. The real impact of the lockdown and the extent of damage to the national/global economy is not known at present. At this stage we don’t really know the real extent of stressed assets created by this scourge. It may be prudent to wait for a couple or may be three quarters before setting up the bad bank as a much larger corpus might be needed to deal with the problem.

Arun Pasricha New Delhi

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