The government is considering setting up of an asset reconstruction company to take over part of non-performing assets (NPAs) of public sector lenders, Chief Economic Adviser Arvind Subramanian said on Wednesday.
“The government is looking at it (NPA problem) very closely. I think the more you delay the problem, the more the private investment will remain weak. That is, I think, the big cost we face now... and of course, the losses to the government keep mounting. Because you delay, the value of the asset declines and the amount of debt goes up,” he said.
Subramanian said it was important for banks to get political cover to write down debts they are unable to recover.
“The heart of the problem is how do you get political cover to write down debt. I think it is going to be difficult for the private sector to get this kind of money, and to be bold enough to be able to take these decisions,” the CEA said in a media interaction.
“Banks have to write off these debts. Which middle-level manager has the gumption or the courage in this environment to do that? Decisions on that are profoundly political,” he said.
His comments come a day after RBI Deputy Governor Viral Acharya had suggested a two-pronged strategy to resolve the issue of bad loans.
The first, he said, was creation of a private asset management company which could buy loans of telecom, textiles and metals, where the demand is good and loans are not too large. The other, Acharya said, was creation of a national asset management company for larger stressed assets of power companies.
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