RBI open to bad bank if there’s a proposal, says Shaktikanta Das

The Reserve Bank of India (RBI) is open to examining any proposal to set up a bad bank, Governor Shaktikanta Das said, days after the authority forecast a surge in soured assets.

“If any proposal comes we are open to examining it and issuing the regulatory guidelines but it’s for the government and the private sector players to really plan for it,” Das said, following a speech on financial sector stability on Saturday. “If there is a proposal -- please mark my words -- if there is a proposal for setting up a bad bank, RBI will examine and take a view on that.”

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State Bank of India, the nation’s biggest lender, and peers are discussing a potential proposal, Rajnish Kumar, who headed the bank at the time, said in May. Economic Affairs Secretary Tarun Bajaj last month said the government is exploring all options including setting-up a bad bank to improve the health of the country’s financial sector.

Previous central bank governors hadn’t supported the idea given that state-run lenders already hold the bulk of soured assets. The banking sector’s bad loan ratio is forecast to rise to 13.5% by September from 7.5% a year ago as the pandemic worsened an economic slowdown.