Economics Prelims cum Mains

Bankers’ committee to consider ARC

The News

  • Finance Minister met the heads of PSBs of western and southern regions and discussed various issues related to banking.


About the session

The session was devoted to internal discussions between the bankers and several aspects of Indian banking like:

  • Improve the credit flow, while mitigating the risks associated with that.
  • To further strengthen the growing Indian economy.
  • Methods how we can achieve global standards for the Indian banks.


Highlights of meeting:

On non-performing assets (NPA):

  • Issue:
    • Gross non-performing assets (NPA) of banks have already hit the Rs 10,00,000 crore mark for the year ended March 2018 with public sector banks accounting for Rs 8,90,000 crore NPAs and private banks the rest.
    • Losses of PSU banks for the quarter were over Rs 62,000 crore.
    • All the bankers want to have such a mechanism which will enable faster resolution of the stressed accounts in a very transparent and speedy manner.
  • Forming ARC/AMC:
    • Union Finance Minister said a panel would examine whether banks need to form an asset reconstruction company (ARC) or asset management company (AMC) for faster resolution of stressed assets.
    • The panel will consider whether such an arrangement will be good for the banking system and if any such suggestion is advisable, they will also consider the modalities by which such an ARC and/or and AMC should be set up.
    • The panel will also come out with their suggestions on ARC/ AMC which should also help the banks to clean their balance sheets.
    • The funding of the proposed ARC is not clear and NIIF could be a possibility that this committee may consider.


On Appointments:

  • Issue: Many higher positions including of CEO/MD are vacant.
  • Finance minister assured that the government will also appoint CEOs for headless public sector banks (PSBs) very soon.


On Banks consolidation:

  • On potential mergers, the banks would have to take a final call on consolidation based on their experiences and needs.


On Bank recapitalization:

  • Issue: In the wake of huge losses as reported in the fourth quarter, banks would need more capital through recapitalization process.
  • It’s a little early to come to that point of view. All the banks will have to look at their balance sheets and what’s the extent of money that they will be receiving by shedding non-core assets.


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