ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

Asset ReconstructionSubscribe to Asset Reconstruction

Asset Reconstruction Companies and the Bad Debt of Indian Banks

The finance minister’s Budget speech 2021 revealed the government’s plans to establish an Asset Reconstruction Company to take over bad debt from the books of public sector banks for eventual disposal. That suggests that the ARC route rather than recapitalisation would in the coming months be the main means of refurbishing capital in the public banking system. Since there are as many as 28 ARCs already in existence, the reason why the creation of one more would resolve a problem that is expected to worsen over the coming year is unclear. In fact, past experience indicates that ARCs have not helped enhance the actual recovery of lock-up in stressed assets. This suggests that the move is a means to postpone the problem of bad debt resolution so as to avoid having to recapitalise the banks with budgetary resources, which would widen the central fiscal deficit.

Some Issues of Growth and Profitability in Indian Public Sector Banks

Public sector banks face a triple jeopardy. First, they are losing market share; second, their profitability is being seriously squeezed; and, third, their balance sheets are not strong and their sovereign support, which had buttressed them so far, is becoming open to question. The reasons for this less-than-enviable condition of the public sector banks are many, but a principal operative factor derives from the nature of their ownership and what that translates into in terms of goals and priorities.
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