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Idea of bank to tackle bad loans gaining traction: Subramanian

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New Delhi : The idea of setting up a state- owned asset reconstruction company (ARC) or bad bank to deal with mounting NPAs is gaining traction and it needs to be created quickly, Chief Economic Adviser Arvind Subramanian said on Wednesday.

“Essentially, there seems like a growing convergence towards the idea (of state-backed asset reconstruction company). The broad idea that we should do like this is gaining traction,” he said. Newly appointed RBI Deputy Governor Viral V Acharya on Tuesday suggested a two-pronged strategy to resolve the issue of bad loans, including creation of a Private Asset Management Company. For larger stressed assets of power companies, loans need to be bought by the government–owned asset management company, he had suggested. Making a case for ARC, Subramanian said, “You were already on the hooks (with bad loans) so not that bad bank is going to cost you more. Second, is RBI has already tried so many things including private ARCs, where is the solution.”

Various proposals are being brought to forefront, he said, adding, “there is a need to get that (bad bank) thing quickly”. Terming mounting Non Performing Assets as a challenge to the economy, he said “there is no one thing that you can do immediately. It’s a very complicated problem. Its not something on which you can just throw money at. I think we just need to work steadily towards…there is very much urgency.” The government is looking at it very closely, he said, adding, “I think the more you delay the problem the more private investment will remain weak. That’s 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 also said finding resources for NPA resolution is not an issue but requires political cover to write down debt.


“My view is that finding the resources finally, will be less of a problem than doing the other things like politics, the writing down of debt and all that. So finding those resources, I don’t think, is really an issue. I don’t think it’s the stumbling obstacle to solving that,” he said.

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