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‘Develop a U.S.-style online platform to sell bad loans’
Context:
- The Reserve Bank of India (RBI) has called for putting in place an online trading platform on the lines of the system in the U.S., to sell distressed assets to ensure more transparency and better price-discovery.
Rationale behind this decision:
- Such a platform could help create a thriving market for selling bad loans, which is plaguing the domestic banking system.
- The banking system is saddled with more than Rs 10 trillion worth of bad loans as of September 2017.
Steps taken by RBI:
- RBI since last June identified 40 largest stressed accounts and asked banks to refer them to various debt recovery tribunals.
- In the financial stability report released recently, the RBI had warned that the bad loans could spike to 10.8% by March and 11.1% by September, 2018.
Stressed assets:
- Stressed assets = NPAs + Restructured loans + Written off assets
- Stressed assets are a powerful indicator of the health of the banking system.
What is an NPA?
- A loan whose interest and/or installment of principal have remained ‘overdue ‘ (not paid) for a period of 90 days is considered as NPA.
Way ahead:
- To create primary market liquidity to offload loans in the interest of asset reconstruction companies to have a secondary market for such assets.
