Bad Loan Asset Bank

Currently hottest topic in Banking industry is NPA.  Lot of discussions are going on about why this happened, How this happened and What should be further course of Action.

One thing is crystal clear that the Banking sector in India is passing thru a very crucial phase and need to do a lot to come out of this situation. Another fact is that the amount of such default account is very high. Considering both the facts in  mind let us discuss about the ways to handle this mammoth issue. Typically such accounts are written off and recovery is very less. The route to assign such loans to Asset Reconstruction Companies (ARCs) has proved more disastrous for the Banks and the Economy of the country.

One of the suggestion to handle this chaos is to create a separate bank off such bad accounts so each and every account can be looked into cautiously and revive if possible. Also such Bad Bank will have experts of settlement, Revival and Recovery. Another suggestion almost related to this can be creation of Asset Bank which owns and monetise each and every part of the Asset of NPA accounts like Land, Building, Plant & Machinery , Brands, IPRs, Technology Expertise and above all Human Resource.

Such Bank can not only prove a good deal in long run but also help in retaining the expertise and invisible assets. If this idea is really put into place there can be a good possibility of recovering the dues. If such assets are managed by the banks directly in long run they would definitely be able to revive or recover the dues. Asset disposal if done properly and slowly without getting panic, will generate substantial recoveries.

It is similar to creating a separate bad bank where the assets can be Parked and serious efforts are made to solve the issues. Government should seriously give thought to this idea, after it is question of public money. To extract better monetisation, separate divisions for visible and non-visible assets can be created. Asset Bank having technology, brands and IPRs can prove to be a great venture in long run if handled properly.

C P Jain, FCA