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Down the Rabbit Hole: Asset reconstruction
companies and the bad debt of Indian banks*
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May 15th 2021, C.P. Chandrasekhar |
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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.
For
full article Click here
* This article was originally published
in the Economic
and Political Weekly on May 15, 2021.
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