|NPA problem worsens|
|Thursday, 23 February 2017 08:05|
Firms with interest cover of under one own 41% of debt
There could be four ways out of this – enhance forbearance, pump in more capital, create a bad bank or facilitate consolidation. Of these, the easiest, but least desirable, would be to allow more forbearance – this amounts to sweeping the dirt under the carpet and helps no one. A bigger dose of capital infusion would help in the short run but doesn’t really resolve the issue – in any case, the government clearly isn't buying the idea; there are reports only Rs 2,000 crore of recapitalization would be provided next fiscal as against the planned Rs 10,000 crore which was also inadequate. The total stressed assets in the system today – the sum of gross NPAs and restructured loans – are around 12.3% of assets and at least half of this or around Rs 4.5 lakh crore is probably irrecoverable.
This is where RBI deputy governor Viral Acharya has suggested twin initiatives – one purely private for sectors like metals, telecom, EPC and textiles with moderate levels of debt forgiveness and a second state-backed National Asset Management Company (NAMC) for sectors like power where the debt forgiveness is very high and turnarounds are going to take much longer. Even with the right political backing, getting the bad bank to work will take time – in most cases, promoters will have to removed and, in the case of the private venture, Acharya’s plan involves the turnaround case being rated by at least two credit rating agencies. Simultaneously, the government has to facilitate bank consolidation and, though not an ideal way out since weak banks will need to be merged with stronger banks – this will dilute the franchises of the latter – it would over time create stronger institutions.