No decision taken on setting up bad bank: Finance Minister official

The finance ministry on Friday said there is no decision taken on the proposal of setting up of a government-sponsored bad bank to help ease pressure on lenders with regard to non-performing assets (NPAs) which are likely to witness a surge due to the COVID-19 crisis.

Even the Economic Survey 2017 had proposed this idea, suggesting the creation of a bad bank called Public Sector Asset Rehabilitation Agency (PARA) to help tide over the problem of stressed assets.

Lenders have been making a case for setting up a bad bank to ease out pressure of bad loans on them in these difficult times.

According to a senior official of the finance ministry, the proposal was discussed during the Financial Stability and Development Council (FSDC) meeting on Thursday.

However, no decision has been taken on the issue, the official added.

Currently, banks sell their bad loans to asset reconstruction company (ARC) as per the prudent norms of the Reserve Bank of India.

SBI Chairman Rajnish Kumar had said "we believe that this is the right time where a structure along the lines of a bad bank can be worked out because the provisions on the existing NPAs -- most of the banks are holding a very high level of provisions.

"So a bad bank 3 years ago was not feasible, because the provisions were inadequate. So at least today we have the adequate provisions and net book value is hardly 10-15 percent of the gross NPAs," he had said.

Meanwhile, the finance ministry official while talking about a curb on foreign portfolio investment (FPI) from China said "the government has not taken a call on that".

Last month, the government decided to put restriction on foreign direct investment (FDI) to clamp down on the investor from China to buy Indian companies cheap.

The amendments to the FDI rules were necessitated by the fear among officials as well as businesses about possible takeover attempts by Chinese companies — sitting on piles of cash — of Indian entities where share prices had fallen after the outbreak of the COVID-19 pandemic.