Mumbai: The Reserve Bank of India is open to creating an agency to hold non-performing assets of banks, an idea most recently highlighted by chief economic adviser Arvind Subramanian, to relieve the banking sector of its biggest burden.

Central bank officials said they are open to all solutions on solving the NPA problem of banks, including shifting their NPAs into a so-called bad bank. However, such an entity should be designed well so that these loans are attractive to buyers.

Though the pace of additions in NPAs has slowed, the high amount of bad loans on bank balance sheets is a concern. Resolving this problem and recapitalisation of the lenders are crucial for timely transmission of policy rates and ultimately revive lending to some industries, the central bank said in its monetary policy statement.

Deputy governor SS Mundra said the gross NPA ratio for some banks has come down for the first time in many quarters, but that isn’t enough to mitigate all worries.“The level of stressed assets in the industry is slightly above 20%; it would not be fair to say that there is no concern. There is concern,“ he said. The RBI has given a number of tools to banks for resolving the problem and “our sense is that a combined use of these tools is something that we will continue to monitor,“ he added.

On having a bad bank, as suggested by Subramanian in the Economic Survey , RBI’s new deputy governor Viral Acharya said for such an entity to work, it has to be designed right. “The big piece of the problem is getting banks to sell the assets at a right price to asset reconstruction companies and private investors who want to come in.How to get that right price to come in by using a portfolio or a bad bank kind of an approach, I think that is going to be key,“ he said.

The RBI will think about how such an entity can be designed to attract maximum investors. In fact, the idea of a bad bank has been around for some time but has not taken off due to a variety of issues.

“Bad bank is a good idea but the consensus on it has been delayed,“ said Saurabh Tripathi, director at Boston Consulting Group. “If banks can consolidate all their bad assets, then it will help in quicker resolution because right now there are differences between banks in resolution of assets. These differences won’t be there if these assets are transferred to a bad bank and managed professionally .”
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