Resolving NPA issue is top priority for government: Sanjeev Sanyal

MUMBAI: The government has dropped the idea of setting up a bad bank though solving NPA problem is the top priority for the government right now than consolidation as the government is keen on creating a long-term framework for strong and stable growth, indicated a top government official.

Creating fundamentally strong banks is essential for India’s long-term growth for which resolving NPAs is crucial according to the government. “Solving the NPA problem is the top most priority right now though consolidation is important,” said Sanjeev Sanyal, principal economic advisor, speaking at a Ficci event in Mumbai. The gross non-performing advances ( GNPAs) ratio of SCBs amounted to 9.6 per cent in March 2017. While the stressed advances were 12.0%.

Defending the government’s decision to go ahead with the Insolvency and Bankruptcy Code ( IBC) and not go by the earlier suggestion of setting up a bad bank Sanyal said that a bad bank would end up being a warehouse of bad loans.

Responding to criticism on the IBC that bankruptcy laws were not tested, Sanyal said that despite gaps, it was the only option was to do it because modelling would not work here. “The idea is to do it, seek feed backs and fix it,” he said.

He however, did not discount the need for consolidation in the banking sector.” India needs a banking system in the order of magnitude that is much larger than what it is today “ Sanyal said.

As for capitalisation needs,” The government will get an idea on the level of capitalisation.

Among other things, Sanyal underscored the need for rule of law and enforcement of contracts for better functioning of the economy. Several legal issues need clarification even when it comes to resolving NPA issues ” We need to debate on fixing the legal system. We also need more clarity and transparency in rules ” he said.