Will a bad bank fix India’s failing banking system? | The Hindu Parliament Podcast

A bad bank can help with debt collection, but it is not a substitute for a new injection of capital.

Last month, the Union government established the National Asset Reconstruction Company Limited (NARCL) under the Companies Act. It has thus kept its promise to create a “bad bank” to clean up the balance sheets of commercial banks. Under the new setup, NARCL will take over loans worth nearly 2 lakh crore from commercial bank books at a mutually agreed price. NARCL will prepay 15% of the price of these cash loans to banks and then issue collateral receipts instead of the remaining amount. NARCL will then try to resolve these bad debts within a limited time frame with the help of India Debt Resolution Company Limited (IDRCL). In the event that the IDRCL is unable to sell these bad debts at a price satisfactory to repay the collateral receipts, the Center will step in and fund the deviation, but within a budget limit of 30,600 crore.

Here we are discussing the bad bank’s proposal.

Guests: CP Chandrasekhar, professor at the Center for Economic Studies and Planning, JNU; Ajit Ranade, Chief Economist of the Aditya Birla Group

Host: Prashanth Perumal J.

Read Parley’s article here.

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