The decision on setting up Bad Bank yet to be finalized: FinMin Official

The government decidedbad bank last month to put a restriction on foreign direct investment (FDI) to clamp down on the investors from China to buy Indian companies cheaply.

Lenders have made a case for setting up a bad bank scenario to ease out pressure of bad loans on them in these testing times. Also, the investment plans by businesses have been impacted because of lower returns.

The decision on the proposal of setting up a government-sponsored bad bank by the finance ministry which is likely to ease pressure on lenders with regards to non-performing assets with the coming of the COVID-19 crisis has yet to be taken, said the official government sources.

The creation of a bad bank called Public Sector Asset Rehabilitation Agency (PARA) also finds itself in the Economic Survey 2017 an idea to help overcome the problem of stressed assets.

The demand made by lenders has been for setting up a bad bank to ease out pressure of bad loans on them in these difficult times.

According to a senior official of the finance ministry, the proposal was discussed during the meeting of the Financial Stability and Development Council (FSDC) under the finance ministry held on Thursday.

However, the decision has yet not been taken on the issue, the official added. As of now, the prudent norms of the Reserve Bank of India the banks have to sell off their bad loans to asset reconstruction company (ARC).

SBI Chairman Rajnish Kumar had said, “this is the right time where the government needs to build a structure along the lines of a bad bank because the existing provisions on the NPAs — most of the banks have been holding a higher level of provisions than required.”

“So a bad bank that existed 3 years ago was not feasible, because the provisions at that were inadequate. Now that we have the adequate provisions and also the NBV is hardly 10-15 percent of the gross NPAs,” he had said.

Meanwhile, the official from the finance ministry while being interviewed about a curb on foreign portfolio investment (FPI) from China said: “the government has not taken any decision on that yet”.

Last month, the government decided to put a restriction on foreign direct investment (FDI) to clamp down on the investor from China to buy Indian companies cheaply.

The amendments to be made with the FDI rules was triggered by the fear among senior officials as well as business houses over a possible takeover by the Chinese companies sitting on piles of cash of Indian origin entities where the share prices had a fall after the outbreak of the COVID-19 pandemic.

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