the Survey said.
So far, public discussion of the bad loan problem has focused on bank capital, as if the main obstacle to resolving TBS was finding the funds needed by the public sector banks, it said.
“Without doubt, there are cases where debt repayment problems have been caused by diversion of funds. But the vast bulk of the problem has been caused by unexpected changes in the economic environment: timetables, exchange rates, and growth rate assumptions going wrong,” it said.
Noting that many of these companies are unviable at current levels of debt requiring debt write-downs in many cases, it said, cash flows in the large stressed companies have been deteriorating over the past few years, to the point where debt reductions of more than 50 per cent will often be needed to restore viability.
The only alternative would be to convert debt to equity, take over the companies, and then sell them at a loss, it said.
It also emphasised that banks are finding it difficult to resolve these cases, despite a proliferation of schemes to help them.
Among other issues, they face severe coordination problems, since large debtors have many creditors, with different interests, it said.
“If PSU banks grant large debt reductions, this could attract the attention of the investigative agencies. But taking over large companies will be politically difficult, as well,” it said.
Observing delay in NPA resolution is costly for the economy, it said, impaired loans of banks are scaling back their credit, while stressed companies are cutting their investments.
“Private Asset Reconstruction Companies (ARCs) haven t proved any more successful than banks in resolving bad debts.
But international experience shows that a professionally run central agency with government backing while not without its own difficulties — can overcome the difficulties that have impeded progress,” it said.
Over the past three years the RBI has implemented a number of schemes to facilitate resolution of the stressed asset problem. These include Sustainable Structuring of Stressed Assets (S4A), Strategic Debt Restructuring (SDR) and Asset Quality Review (AQR).
(This article has not been edited by DNA’s editorial team and is auto-generated from an agency feed.)