Economic Survey 2016-17 suggests setting up of a centralised Public Sector Asset Rehabilition Agency
The Agency will look after the largest, most difficult Cases, and make Politically Tough Decisions to reduce Debt
The Union Finance Minister Shri Arun Jaitley presented the Economic Survey 2016-17 in the Parliament today. The Survey shows that our country has been trying to solve its ‘Twin Balance Sheet’(TBS) problem – overleveraged companies and bad-loan-encumbered banks, a legacy of the boom years around the Global Financial Crisis. So far, there has been limited success. The problem has consequently continued to fester: Non-Performing Assets (NPAs) of the banking system (and especially public sector banks) keep increasing, while credit and investment keep falling. Now it is time to consider a different approach – a centralised Public Sector Asset Rehabilitation Agency (PARA) that could take charge of the largest, most difficult cases, and make politically tough decisions to reduce debt.
As per the Survey, gross NPAs has climbed to almost 12 per cent of gross advances for public sector banks at end-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. As this has occurred, growth in private and overall investment has turned negative . A decisive resolution is urgently needed before the TBS problem becomes a serious drag on growth.