This refers to the editorial "Reconstruction question" (August 26). Till now, asset reconstruction companies (ARCs) in India have been nothing but a conduit for banks in helping them convert stressed assets in the bank's balance sheet to investments.
The probability of the creation of bad assets needs to be minimised. This will require a revamp of the appraisal system of banks and financial institutions (FIs). The system relies heavily on the performance of a sector and the economy's current state. When the economy is performing well, there is a huge rush by the banks to finance. One example is the finance to the power sector, which now forms the bulk of its non-performing assets. Numerous greenfield power projects are unable to operate at projected levels due to the scarcity of coal and gas domestically. A detailed forecast of the economy and government policy is imperative while considering big-ticket loans. But banks and FIs need to study the impact of the global economy as well.
V Sridhar Kolkata
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