NPAs to now be tackled with PARA: Economic Survey

a. Public Sector Assets Reconstruction Agency

b. Public Sector Asset Rehabilitation Agency

c. Public Sector Additional Reconstruction Association

d. None of the above

 

To tackle with the problems of increasing Non-Performing Assets (NPAs) of the banking system and declining credit and investment, the Economic Survey 2016-17 on recommended a centralised Public Sector Asset Rehabilitation Agency (PARA).

PARA will aim to look at the largest, most difficult cases, and make politically tough decisions to reduce debt.

As per the Survey, gross NPAs have 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 ‘Twin Balance Sheet’ problem becomes a serious drag on growth.

Public discussion of the bad loan problem has focused on bank capital.

A far more problematic issue is that of finding a way to resolve the bad debts.

“Some debt repayment problems have been caused by diversion of funds.

But the vast majority has been caused by unexpected changes in the economic environment after the Global Financial Crisis.

This caused timetables, exchange rates, and growth rate assumptions to go seriously wrong.

This concentration creates a challenge since large cases are difficult to resolve, but also an opportunity.

The large debtors have many creditors, with different interests.

A professionally-run central agency with the government backing could overcome the coordination and political issues that have impeded progress so far.

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