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mains Test Series 2018
Q. Remedy for bad loans: In the backdrop of Vinod Rai’s letter, comment on issue of bad loans.
Mar 22, 2017 Related to : GS Paper-3

Ans :

Introduction-

Recently Banks Board Bureau chairman Vinod Rai has written central government regarding needs to expedite restructuring of the banks’ bad loans portfolio. The Vinod Rai has suggested expanding the role of the Oversight Committee and some technical refinements to solve the problems of bad loans.

Issue-

The problem of holding up bad loan restructuring is not technical in nature, rather it is political in nature. Loan restructuring will entail banks taking a haircut, substantial in many cases, but bank officials wants assurance that they would not be held responsible for this.

Analysis-

  • The issue of bad loans if not addressed immediately with effective control, the bank liquidity crisis and NPA levels will spiral out of control, choking lending and growth. It will hinges growth and investment.  
  • Loan restructuring will cause loss to state owned banks and exchequer, in this backdrop bank officials wants assurance that they should not be held responsible for this. Hence government must give political cover to this aspect, which is most challenging.  
  • The reassurance to public sector bank managements that they will not be hounded for accepting haircuts to clear up their books, by agencies like the Central Bureau of Investigation (CBI) and the Enforcement Directorate (ED) is essential to resolve the crisis of bad loans.

Conclusion-
Issue of bad loan is cause of concern not only for banking sector, but also to whole economy. Banks Board Bureau chairman Vinod Rai clearly urged for restructuring of the banks’ bad loans portfolio immediately. It can be possibly through political solution, hence the central government needs to take immediate actions.


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