Letters Tackling bad assets

This refers to the editorial "Bad assets blues" (May 18). The unloading of a significant chunk of bad assets in infrastructure from the books of banks on to a special purpose vehicle, as suggested in the editorial, would only transfer the problem without actually solving it. Affected banks are too willing to comply with this requirement as it implies only passing accounting entries. There are other sectors such as aviation, diamonds, and textiles, which also have a significant share in bad assets. What about these assets?

Recapitalisation of banks, even on a selective basis, is not a solution either, unless there are significant changes in appraisal, follow-up systems and process of lenders. A simple question that has been left unanswered so far is the private sector lenders (PSLs) systems and procedures.

Why do PSLs have such a low share of bad assets while their counterparts have amassed huge numbers? Prominent PSLs are not even part of the consortium that has lent to bad companies. These banks had the pro-active intelligence and adopted an untouchable policy with regard to some sectors and companies. Further, no asset becomes "bad" overnight. An effective follow-up system could identify the incipient sickness. Lenders should immediately take steps before further exposure to such units.

K V Rao Bengaluru

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