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No easy solutions: on tackling NPAs
Union Minister Piyush Goyal, currently in charge of the Finance Ministry, has announced the formation of a committee to assess the idea of special asset(संपत्ति) reconstruction(पुनर्निर्माण) companies or asset management companies to take over bad loans from banks. The bankers’ panel has been given two weeks to revert(वापस/पूर्वस्थिति में लौटना). The idea of a ‘bad bank’ is not new. Chief Economic Adviser Arvind Subramanian had suggested the creation(निर्माण/निर्मिति) of a Public Sector Asset Rehabilitation Agency (PARA) to deal with what he described(वर्णन किया/उल्लिखित as India’s “festering twin balance sheet problem”. By this he meant over-leveraged corporates unable to service debt or invest afresh, and banks hit by non-performing assets (NPAs) cagey about fresh lending(उधार). This overhang hurts new investments and continues to dent India’s medium-term growth and job creation prospects(संभावनाओं). A professionally-run PARA, or the so-called ‘bad bank’, could assume custody of the largest and most difficult-to-resolve(समाधान करना/संकल्प) NPAs from lenders’ balance sheets. This would allow banks to focus on extending(विस्तार/फैलाव) fresh credit and supporting the pick-up in growth. More importantly, a bad bank taking tough decisions on borrowers-gone-bad, it was argued, could free bankers from the risks entailed(शामिल) in large loan write-downs.
But there are good reasons why the Finance Ministry left the bad bank idea in the cold over the past year and a half – among them the fact that the new entity(वास्तविकता/सत्ता) would need a lot of capital support, just as banks do. Some of this was envisaged(परिकल्पित) as coming from the Reserve Bank of India through a complicated(उलझा हुआ/पेचीदा) transaction. After a long debate within government, under Finance Minister Arun Jaitley, it was noted that setting up a new institution would be very time-consuming(उपभोक्ता/नष्ट करना) and there would be challenges on its ownership structure as well as the pricing of bad loans taken over from banks. In any case, going by the experience of private asset reconstruction companies, a PARA by itself would not be able to deploy(प्रसारित करना/ तैनात करें) dramatically different tools to extract better value from underlying assets and would, at best, amount to window-dressing bank books to attract investors. As former RBI Governor Raghuram Rajan had pointed out, a government-owned bad bank could still face scrutiny from the Comptroller(नियंत्रक) and Auditor(लेखा परीक्षक)General and the Central Vigilance Commissioner. For now, the government is clearly under pressure to demonstrate fresh intent to investors as India Inc believes bank loans are likely to remain sluggish(सुस्त/निष्क्रिय) for the next two-three years. Whether or not the knots in the bad bank idea are sorted out, the government should focus on other reforms as well. One, amend the Prevention(रोक-थाम/निवारण) of Corruption Act to shield bankers and officers from investigative witch-hunts. Two, back bankers to take demonstrable action against wilful defaulters. And three, take a hard look at what ails the Insolvency(दिवाला/शोध-अक्षमता) and Bankruptcy(दिवालियापन) Code.
Important Vocabulary
1.Revert(वापस/पूर्वस्थिति में लौटना).
Synonyms: degenerate, go back, hark back, react, regress
Antonyms: develop, continue, get better, halt, improve
2.Extending(विस्तार/फैलाव
Synonyms: approaching, continuing, lengthening, ranging, spanning
3.Consuming(उपभोक्ता/नष्ट करना)
Synonyms: engrossing, exhausting, immoderate, intense
4.Envisaged(परिकल्पित)
Synonyms: anticipate, behold, conceive, conceptualize, contemplate
5.Sluggish(सुस्त/निष्क्रिय)
Synonyms: heavy, inactive, lethargic, listless, slack
Antonyms: active, alert, busy, energetic, lively
6.Deploy(प्रसारित करना/ तैनात करें)
Synonyms: expand, open, set up, use, arrange
Antonyms: conclude, end, finish, conceal, disarrange
