How To Tackle Bad Loans? Government Suggests These Steps

Mumbai: An Indian government panel has suggested creating an asset management company (AMC) to resolve bad loans above 5 billion rupees ($73 million), among steps to clean up the banking sector, the interim finance minister said on Monday. The panel of bankers was formed last month as lenders, already burdened by a near-record 9.5 trillion rupees of soured loans as of last year, reported a further rise in bad loans in the quarter to March after the central bank withdrew half a dozen loan-restructuring schemes and tightened some rules.

"This is a completely bank-led resolution process and there is no immediate role for the government in this," minister Piyush Goyal told reporters in a late-night news conference, adding that banks can transfer bad assets to the AMC or an alternate investment fund depending on market conditions.

Goyal, who is standing in for regular Finance Minister Arun Jaitley, also said that for small and medium sized industries with loans of up to 500 million rupees, a template will be made so that bank officials can decide within 90 days of a loan going sour how to resolve them.

India's 21 state banks majority-owned by the government account for two-thirds of banking assets in the country and hold close to 90 percent of soured loans. The top banks include State Bank of India and Punjab National Bank.

The bad loans problem, driven largely by infrastructure sectors including power, has stifled banks' ability to lend to new businesses to boost growth critical for Prime Minister Narendra Modi, who faces a general election by May.

In an interview published on Monday, Modi said that he identified the problem of bad loans soon after taking office in 2014 and has been working to resolve it.

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