RBI open to proposals on creation of bad bank: Shaktikanta Das

Mumbai: Reserve Bank of India Governor Shaktikanta Das on Saturday said the central bank can consider the idea of a bad bank if there is any such proposal.

Delivering the Nani Palkhivala Memorial lecture, the RBI governor said the government and private players have to plan for it. “If there is a proposal to set up a bad bank, the RBI will look at it. We have regulatory guidelines for ARCs (asset reconstruction companies). We are open to look at any proposal to set up a bad bank. If any proposal comes, we are open to examine it," said Das.

The idea of setting up a bad bank is one of the proposals submitted by the Confederation of Indian industries in its pre-budget memorandum to the government. On 19 December, Economic Affairs Secretary Tarun Bajaj had said the government is exploring all options, including setting up of a bad bank, to improve the health of the country's banking sector.

A bad bank bundles up all the bad assets of financial institutions at a discounted price and sells it to investors by putting a turnaround plan in place. Indian Banking Association (IBA) had submitted a proposal to both the Government and the RBI to set up a national level asset reconstruction company with the government infusing capital worth ₹10,000 crore.

The idea of forming a 'bad bank' in India was initially floated in January 2017 when the Economic Survey of India suggested setting up a Public Sector Asset Rehabilitation Agency (PARA). RBI, too, came up with a suggestion to form two entities to clean up the bad loan problems ailing PSBs -- PAMC (Private Asset Management Company) and NAMC (National Assets Management Company).

In 2018, the government proposed a five-pronged strategy under Project Sashakt to tackle stress in the banking sector, and had formed a panel led by Mehta, the non-executive chairman of Punjab National Bank (PNB). Under the project, the committee had to float an AMC and an AIF to resolve non-performing assets (NPAs) over ₹ 500 crore.

On Saturday, Das also said the central bank will roll out measures on improving governance in banks and non-banks over the next few months and weeks. He said the recent incidents have highlighted the role of promoter, shareholders and senior management in governance. Greater RBI supervision is required to ensure quality of governance, he said.

Speaking on the recent global capital flows, Das said emerging market economies have been building forex reserves into order to cushion themselves from any global spillovers. To mitigate global spillover, economies have no recourse but to build their own forex reserve even thought at the cost of being included in the currency manipulator list of US treasury. "This aspect needs greater understanding on both sides so that EMEs can actively use policy tools to overcome capital flow related challenges," he said.