RBI awaiting formal proposal from government on bad bank: Shaktikanta Das
Union Finance Minister Nirmala Sitharaman announced the Bad Bank proposal in the Budget 2021
File image of Reserve Bank of India (RBI) Governor Shaktikanta Das
Reserve Bank of India (RBI) governor Shaktikanta Das on February 5 said the central bank is awaiting a formal proposal from the government on the proposed bad bank.
“We are waiting for the formal proposal from the government,” Das said in a press conference post the monetary policy announcement.
In the Union Budget 2021, Finance Minister Nirmala Sitharaman announced the creation of a bad bank, in the form of an asset management company-asset reconstruction company model to absorb the stressed assets in the banking system.
Centre s New Bad Bank May End up Inflating Loan Prices, Worries Market Participants: Report
Union Budget 2021 announced setting up a new bad bank to manage one of the world’s largest piles of stressed loans that may actually end up inflating prices.
According to a report by Bloomberg, experts say they’ll be closely watching whether it could wind up inflating the price of distressed assets. That could happen if the creation of the bad bank reduces pressure on loan owners to price such debt at discounts attractive enough to draw other buyers, the argument goes.
The report further adds that if the firm is owned by lenders including ones that originated soured assets bought at lower prices, that could force those banks to mark down the value of the securities they receive in exchange.
Exclusive | Govt won t own or fund Bad Bank’, loans worth Rs 2.25 lakh crore to be shifted to new entity
Stressed assets of Rs 500 crore and above will come under the proposed Bad Bank in the initial phase. Government has initiated consultation with RBI, per top bureaucrats. Lakshman Roy February 02, 2021 / 01:56 PM IST
The government is preparing to bring stressed assets worth Rs 2.25 lakh crore under the proposed ‘Bad Bank’. The entity which will be entirely funded and managed by commercial banks, said two top bureaucrats in an exclusive interaction on February 2.
As per the plan, bad loans above Rs 500 crore will be brought under the entity from 68-70 accounts, they said. The entity will be floated soon.
Banks are facing a resurgence of bad assets in teh aftermath of COVID-19. A bad bank will help to segregate the existing stock of bad assets from the good so that banks can focus on fresh lending.