The panel urged the Reserve Bank of India to clearly define every step of the procedure to remove any ambiguity or discretion from the banks’ side
The RBI should intervene as soon as possible to unlock value from non-performing assets
A parliamentary panel has recommended that the stressed assets of banks must be transferred to the proposed bad bank at book value as the more time such assets are left on the lenders’ balance sheet the more is the prospect of their value eroding.
The Parliamentary Standing Committee on Finance said the bad bank, which will be owned by both public and private sector banks, will help in saving time and avoiding delays in resolving soured loans through consolidated decision making.
The Union Budget 2021-22 proposed setting up an asset reconstruction and asset management company led by banks to take on and consolidate the existing stressed debt, which would manage and dispose the assets to alternate investment funds.
The panel urged the Reserve Bank of India to clearly define every step of the procedure to remove any ambiguity or discretion from the banks’ side. “…RBI can play an instrumental role in success of Bad Bank if they issue an order or notification which makes the entire process crystal clear, defining each step of the procedure, thus removing any ambiguity or discretion from the bank’s side,” said the panel, headed by BJP MP Jayant Sinha.
A regulatory intervention at this stage will further streamline and add more pace to resolution of stressed assets, the report said. “The RBI needs to demonstrate why their proposed rules for loss transfer to the ARC-AMC is in fact the best approach,” the panel said in its report.
“Their rules should reflect both administrative clarity as well as economic logic,” it said.
The RBI should intervene as soon as possible to unlock value from non-performing assets, it said.