The Economic Survey tabled on Tuesday has prescribed the establishment of a centralised public sector Asset Rehabilitation Agency or (PARA) to address the issue of rising non-performing assets (NPAs) in the banking sector.
The proposed agency or asset reconstruction company should focus on the largest and the most difficult cases and make politically tough decisions to reduce debt, the survey said.
Chief economic adviser Arvind Subramanian, in the annual report card of the government, said that gross NPAs jumped to almost 12% of gross advances for public sector banks at the end of September 2016.
“At this level, India’s NPA ratio is higher than any other major emerging market, with the exception of Russia. The consequent squeeze of banks has led them to slow credit growth to crucial sectors – especially to industry and medium and small scale enterprises (MSMEs) – to levels unseen over the past two decades,” the survey said. What is even more worrisome is that banks have reported fresh slippages since June 2016.
The survey also pointed out that since banks are unable to resolve “the big cases, they have simply refinanced the debtors, effectively ‘kicking the problems down the road’. But this is costly for the government, because it means the bad debts keep rising, increasing the ultimate recapitalization bill for the government and the associated political difficulties.