Empower banks, create SPV to contain NPAs: Assocham

The Dollar Business Bureau

To contain non-performing assets (NPAs) of banks, the government should authorise the public sector banks’ boards to pare bad assets through forming Special Purpose Vehicle (SPV) in the form of an ‘asset revival bank’ that can prepare broad rules for the lenders to take ‘haircuts’, industry body Assocham said. 

The dual exercise of giving powers to the boards of public sector banks and setting up of an SPV that may also be called as Asset Revival Bank (ARB) should be implemented without any delay. This will instill confidence in bankers to come out with decisions regarding the loans restructuring for sectors like construction, steel, power etc, the industry body said.

Though SPV should be empowered to set the rules, the boards of banks would be given powers to take decisions on the quantum of waiving the compounding interest, it said. 

D S Rawat, Secretary General, Assocham said that the such an idea has already been tried in China and has been able to managing the issues at a much greater scale. 

Rawat said the structure of ARB should be such that it can be put outside the purview of Central Vigilance Commission (CVC), Comptroller and Auditor General (CAG), and Central Bureau of Investigation (CBI). These agencies have already put enough fears amongst bankers, who are not taking even usual decisions of sanctioning new loans.

"So far as taking a call on the NPAs or writing them off or cleaning the balance sheets is concerned, these have become a clear no-no because of the fear of being hounded even after retirement," it said.

The industry body said that in a growing country where the overall portfolio of loan or the balance sheet of the banks needs to grow, writing off bad loan amounting to Rs.12,000-Rs.14,000 crore per year should not catch attention and be termed as part of a normal risks of business.