The government has to commit to a significant capital infusion into a bad bank if the concept has to be a success, said IDFC Managing Director and CEO Rajiv Lall while speaking at the Business Standard Banking Round Table 2016.
Highlighting the two big challenges faced by a bad bank, Lall said that the first issue was getting actual talent in to deal with bad loans, while the second issue is that existing banks should be able to transfer bad loans to the bad bank at valuations they want, Lall added.
As reported earlier, a 'bad bank' was proposed to take over stressed assets of public sector banks (PSBs), enabling these lenders to focus on normal commercial activity. Stressed assets in the banking system rose to 12 per cent of the total in June, from 11.4 per cent at the end of March. The net combined loss for the 25 listed PSBs was Rs 1,193 crore in the financial year's first quarter, ended June, against a net profit of Rs 9,449 crore in April-June 2015.
The idea of a bad bank has been discussed in recent days, where a bad bank or an asset management company could be set up with government money to buy non-performing assets (NPA) from banks.
Lall also spoke about challenges regarding resolving the NPA issue faced by the banking industry.
Resolutions regarding NPAs take long because in this global environment it's not easy to find buyers for large projects, Lall pointed out. Further, he said that a lot of projects had multiple lenders making any resolution more complicated.