The stressed assets of banks should be transferred to the proposed bad bank at book value, according to a parliamentary panel, because the longer they remain on the lenders’ balance sheet, the greater the risk of their value eroding.
According to the Parliamentary Standing Committee on Finance, the bad bank, which will be owned by both public and private sector banks, will help save time and prevent delays in settling sour loans by allowing for centralised decision-making.
The Union Budget for 2021-22 suggested establishing an asset reconstruction and asset management corporation headed by banks to take on and consolidate existing stressed debt, as well as manage and sell the assets to allocating investors.
The panel urged the Reserve Bank of India to describe each step of the process in detail to eliminate any ambiguity or discretion on the part of the banks. “…the RBI can play a critical role in the success of Bad Bank if they issue an order or notification that makes the entire process crystal clear, defining each step of the procedure, and thus removing any ambiguity or discretion from the bank’s side,” the panel, led by BJP MP Jayant Sinha, said.
A regulatory intervention at this stage will streamline and speed up the resolution of stressed assets, according to the report. “The RBI must show why their proposed rules for loss transfer to the ARC-AMC are the best approach,” the report says.
It stated that “their rules should reflect both administrative clarity and economic logic.”
According to the report, the RBI should intervene as soon as possible to unlock value from non-performing assets.
