Bad bank move concerns RBI |
With the government going ahead with the idea of creating a bad bank, Reserve Bank made its concerns clear on the ownership of such a vehicle to tide over the bad loan menace, saying the lenders should hold a minority stake in any stressed assets fund. Majority ownership by banks is probably not wise or warranted. Perhaps, some form of minority ownership with a number of other players coming in, in addition to the government, to provide capacity, especially in management of stressed assets would be appropriate. RBI Governor Raghuram Rajan told reporters amid a confirmation from the government that it was serious on setting up a stressed asset fund, which in the common parlance is called a bad bank, to take care of the bad assets. A bad bank, as is present in China for instance, buys up all bad loans from other banks.Rajan has been critical of such an entity saying when banks themselves or government own such an entity it creates a moral hazard, enabling banks to continue with their reckless lending practices as they know that they will be bailed out one day by the system. .Rajan said the key issue for such a fund will be the issue of pricing, where both the bank selling a stressed asset and the fund buying into it find a common ground.
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