Economic survey stresses on establishing PARA

New Delhi: Economic Survey 2016-17 today stressed on the need to establish a centralised Public Sector Asset Rehabilitation Agency (PARA) in view of rising bank NPAs and declining credit growth.

The agency could take charge of the largest, most difficult cases, and make politically tough decisions to reduce debt, the survey said. Noting that India has been trying to solve its 'Twin Balance Sheet'(TBS) problem  overleveraged companies and bad-loan-encumbered banks, a legacy of the boom years around the global financial crisis, the 2016-17 report card of the state of the economy tabled by Finance Minister Arun Jaitley in Parliament said "decisive resolution is urgently needed before the TBS problem becomes a serious drag on growth".

Observing that gross NPAs climbed to almost 12 per cent of gross advances for public sector banks at end-September 2016, the survey said, at this level, India's NPA ratio is higher than any other major emerging market, with the exception of Russia.

"The consequent squeeze of banks has led them to slow credit growth to crucial sectors - especially to industry and medium and small scale enterprises (MSMEs)- to levels unseen over the past two decades. As this has occurred, growth in private and overall investment has turned negative," it said.

The survey said the problem has continued to fester as Non-Performing Assets (NPAs) of the banking system (especially public sector banks) keep increasing, while credit and investment keep falling.

"Now it is time to consider a different approach  a centralised Public Sector Asset Rehabilitation Agency that could take charge of the largest, most difficult cases, and make politically tough decisions to reduce debt," it said.