Narendra Modi : Special entity to take over bad loans may take shape soon


KOLKATA: A special purpose entity for managing and recovering banks’ piled up sticky loans may be in the offing with the government showing willingness to de-stress the banking sector, which acts as a barometer to economic development, two people familiar with the development said.

It will take over a bulk of non-performing assets of banks and help companies ridden with bad debts revive.The plan would help the banks to clean their balance sheet and de-risk the economy as a whole.

A cleaner balance sheet would help state-run banks earn a better credit rating as well as improve book value and market capitalisation, which would, in turn, lift their ability to raise capital from the equity market.

These issues were discussed at Prime Minister Narendra Modi’s meeting with a select group of bankers and captains of the industry. Reserve Bank of India governor Raghuram Rajan was also present. The government has also discussed ways to accelerate stalled projects to stimulate economic growth.

The proposal to set up a national asset management company is not new. However, the difference this time, according to senior bankers, is that the government is now keen to link this plan with banks’ ability to improve their market capitalisation

. “Capitalisation of staterun banks under Basel III framework is a serious issue now. This will help de-risking the overall economy and stimulate growth,” an industry captain, told ET. “This will be managed by bankers and veteran professionals.”

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