Mumbai: Confederation of Indian Industry (CII) has urged the government to take into consideration the creation of numerous negative banks to address the adverse effect of non-performing assets accumulated by public sector banks in the current previous, which got additional accentuated throughout the pandemic. CII, in its not too long ago submitted pre-price range memorandum to the government, has encouraged that the government take into consideration enabling Foreign Portfolio Investors (FPIs) and Alternative Investment Funds (AIFs) to obtain NPAs.
Explaining the rationale, Uday Kotak, President CII, stated “In the aftermath of Covid it is important to find a resolution mechanism through market-determined price discovery. With huge liquidity, both globally and domestically multiple bad banks, can address this issue in a transparent manner and get the credit cycle back in action.”
A robust marketplace-primarily based mechanism will encourage PSBs to sell their negative loans, devoid of worry of queries becoming raised later. With cleaner balance sheets, PSBs really should be in a position to raise capital from the marketplace, obviating the require for re-capitalization by the government, a bill which the government can ill afford to foot at this point of time.
The government has place in Rs 80,000 crores in bank re-capitalization in FY 18, Rs 1.08 lakh crores in FY 19, and Rs 70,000 crores in FY 20. In September this year Parliament authorized a different Rs 20,000 crores of capital infusion into PSBs.
Hitherto the NPAs have largely been sold to Asset Reconstruction Companies (ARCs). Due to the restricted capital that ARCs have, several sales are produced not on a money basis but Security Receipts (SR). SR is an instrument wherein the payment is produced only upon recovery which implies that the sale cost is not a ‘true sale’. Based on current RBI information on outstanding SRs, the market estimates that the net recovery price of ARCs is low and may perhaps be in the variety of only about 10-12%. The outstanding SRs is Rs 1.46 lakh crores. This represents the “non-cash” consideration received by banks against the sale of loans.