Act firmly to clean banks

AMCs, ARCs and AIFs, (asset management companies, asset reconstruction companies and alternative investment funds respectively) and Project Sashakt are very expressive sounding acronyms and labels, holding out hope for recovery of people’s money deposited in banks. It remains to be seen how and when these institutions will be set up, or whether they will be non-starters. It’s not that there have been no attempts earlier to handle these toxic assets accumulated by banks. There was the P.J. Nayak Committee that made constructive suggestions like hiving off social sector lending, reforms in the banking system, etc. But there has been no substantive implementation of the suggestions. The government needs to have the political will and determination to clean up the banking system and more vitally to shield the banks from political interference. Some politicians think banks are their piggy banks to be used to further their own agenda. What’s more disturbing is that big influential borrowers are the major defaulters and have been able to postpone the day of reckoning by getting banks to “ever greening” their loans, i.e. giving them more loans to pay off the earlier loans.

Stressed assets, according to the RBI’s Financial Stability Report amount to 12.8 per cent and related frauds amount to Rs 61,200 crore in the last five financial years.

Whilst officiating finance minister Piyush Goyal seems optimistic about these loans being bought by even foreign investors, many questions remain unanswered. For instance, where will the capital for AMCs come from? If banks are to invest in the AIF then why can they not use the same to shore up their funds? One of the difficulties according to experts is that multiple banks, some even as high as 25, are involved in one toxic asset and this fragmentation represents a handicap to a quick resolution.