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Government Panel Proposes Asset Firm For Bad Loans In India

Amid efforts to clean up the banking industry in India, a government panel has floated the idea of creating an asset management company (AMC) that would focus on resolving bad loans that are over $73 million. The panel, which is comprised of bankers, was formed after the government tightened some rules and the central bank withdrew multiple loan-restructuring strategies, Reuters reported.

“This is a completely bank-led resolution process and there is no immediate role for the government in this,” said Piyush Goyal, the country’s minister of finance, in a press conference. Goyal also said that banks could transfer the bad assets to the AMC or an alternate investment fund. In addition, a template would be created to allow banks to make a decision on a resolution within 90 days of a loan going sour.

The lion’s share of soured loans — 90 percent — is held by India’s majority-owned state banks. In addition, these banks hold two-thirds of all the country’s banking assets. Among the top banks in the country are Punjab National Bank and the State Bank of India.

The news comes as India’s banking industry could be in trouble after the Narendra Modi government announced that $37 billion in loans have been written off by the country’s public sector banks during the past four years. Quartz, citing a written statement from the Minister of State for Finance Shiv Pratap Shukla, reported that the government official said the bank write-offs are good for the banking system.

“Banks write off bad loans or non-performing assets (NPAs) at regular intervals, as it helps them clear their balance sheets and achieve tax-efficiency,” Shukla wrote. He did not disclose the names of those who defaulted on the loans.

According to Quartz, the write-offs are worth close to four times the annual budget of the Nepal government. What’s more, the number of bad loans could double if an investment bank forecast turns out to be true, noted the report. Bank of America Merrill Lynch warned in a report that around $28 billion more of loans could be bad in India.

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