Recovering bad assets

With reference to Dilasha Seth’s report, “Capital stimulus for govt banks” (October 25), the beaten down scrips of public sector banks (PSB) have rallied beyond expectations, indicating the market’s confidence in the announcement of the package.

With the infusion of capital, PSBs, the major drivers of credit delivery, will get more strength to finance economic activities. However, rising bad assets will restrict recycling of working funds and obstruct adequate flow of bank credit to various segments of the economy. Stresses in the financial statements of the banks will continue until bad assets are resolved.

Along with recapitalisation, controlling and recovering bad assets are crucial to ensure financial soundness and the capacity to lend. The control and recovery of bad assets have been hampered by the dim performance of the economy. The government has to look for more stimulus packages to ease cash flow and ensure comfortable debt servicing capacity of the different sectors. Existing supporting systems to facilitate resolution of bad loans have to be strengthened.

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V S K Pillai, Changanacherry

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