TOPIC OF THE DAY:-“No Easy Solutions: On Tackling NPAs”

Union Minister Piyush Goyal, currently in charge of the Finance Ministry, has announced the formation of a committee to assess the idea of special asset reconstruction companies or asset management companies to take over bad loans from banks. The bankers’ panel has been given two weeks to revert. The idea of a ‘bad bank’ is not new. Chief Economic Adviser Arvind Subramanian had suggested the creation of a Public-Sector Asset Rehabilitation Agency (PARA) to deal with what he described as India’s “festering twin balance sheet problem”. By this he meant over-leveraged corporates unable to service debt or invest afresh, and banks hit by non-performing assets (NPAs) cagey about fresh lending. This overhang hurts new investments and continues to dent India’s medium-term growth and job creation prospects. A professionally-run PARA, or the so-called ‘bad bank’, could assume custody of the largest and most difficult-to-resolve NPAs from lenders’ balance sheets. This would allow banks to focus on extending fresh credit and supporting the pick-up in growth. More importantly, a bad bank taking tough decisions on borrowers-gone-bad, it was argued, could free bankers from the risks entailed in large loan write-downs. But there are good reasons why the Finance Ministry left the bad bank idea in the cold over the past year and a half – among them the fact that the new entity would need a lot of capital support, just as banks do. Some of this was envisaged as coming from the Reserve Bank of India through a complicated transaction. After a long debate within government, under Finance Minister Arun Jaitley, it was noted that setting up a new institution would be very time-consuming and there would be challenges on its ownership structure as well as the pricing of bad loans taken over from banks. In any case, going by the experience of private asset reconstruction companies, a PARA by itself would not be able to deploy dramatically different tools to extract better value from underlying assets and would, at best, amount to window-dressing bank books to attract investors. As former RBI Governor Raghuram Rajan had pointed out, a government-owned bad bank could still face scrutiny from the Comptroller and Auditor General and the Central Vigilance Commissioner. For now, the government is clearly under pressure to demonstrate fresh intent to investors as India Inc believes bank loans are likely to remain sluggish for the next two-three years. Whether or not the knots in the bad bank idea are sorted out, the government should focus on other reforms as well. One, amend the Prevention of Corruption Act to shield bankers and officers from investigative witch-hunts. Two, back bankers to take demonstrable action against wilful defaulters. And three, take a hard look at what ails the Insolvency and Bankruptcy Code.


1) Revert

Meaning: Return to (a previous state, practice, topic, etc.).

Example: “he reverted to his native language”

Synonyms: Return, Regress

2) Bad bank

Meaning: A bank that takes bad assets (= assets that have lost their value) and bad loans (= debts that are unlikely to be paid back) from other banks or organizations and deals with them in order to help with economic problems.

Example: The Treasury is creating a bad bank that will take on the toxic assets that have damaged the global banking system.

3) Festering

Meaning: If an argument or bad feeling festers, it continues so that feelings of hate or lack of satisfaction increase.

Example: It’s better to express your anger than let it fester inside you.

4) Over-leveraged

Meaning: An over-leveraged person or business has borrowed too much money in relation to their ability to pay it back.

Example: When prices collapsed, many over-leveraged developers went bankrupt.

5) Cagey

Meaning: Reluctant to give information owing to caution or suspicion.

Example: “a spokesman was cagey about the arrangements his company had struck”

Synonyms: Secretive, Guarded

Antonyms: Frank, Open

6) Overhang

Meaning: Something that has a negative effect on a situation.

Example: Prices are unlikely to increase while there is an overhang of 40,000 unsold new houses.

7) Dent

Meaning: Have an adverse effect on; diminish; mark with a dent.

Example: “this neither deterred him nor dented his enthusiasm”

Synonyms: Diminish, Weaken

Antonyms: Increase

8) Entailed

Meaning: Involve (something) as a necessary or inevitable part or consequence.

Example: “a situation which entails considerable risks”

Synonyms: Require, Need

9) Write-downs

Meaning: A reduction in the value of an asset in a company’s accounts, when it is calculated to be worth less than previously shown.

Example: The business was hurt by $15 million in inventory write-downs.

Synonyms: Depreciation

10) Envisaged

Meaning: Contemplate or conceive of as a possibility or a desirable future event.

Example: “the Rome Treaty envisaged free movement across frontiers”

Synonyms: Predict, Anticipate

11) Deploy

Meaning: Move (troops or equipment) into position for military action.

Example: “forces were deployed at strategic locations”

Synonyms: Position, Station

Antonyms: Concentrate

12) Window-dressing

Meaning: An adroit but superficial or misleading presentation of something, designed to create a favourable impression.

Example: “the government’s effort has amounted to little more than window dressing”

13) Scrutiny

Meaning: Critical observation or examination.

Example: “every aspect of local government was placed under scrutiny”

Synonyms: Inspection, Survey

Antonyms: Glance

14) Intent

Meaning: Intention or purpose.

Example: “with alarm she realized his intent”

Synonyms: Aim, Purpose

15) Sluggish

Meaning: Slow-moving or inactive.

Example: “a sluggish stream”

Synonyms: Inactive, Quiet

Antonyms: Busy, Brisk

16) Sorted out

Meaning: To separate one type of things from a group of things.

Example: Sort out any clothes you want to throw away and give them to me.

Synonyms: Classifying

17) Witch-hunts

Meaning: A campaign directed against a person or group holding views considered unorthodox or a threat to society.

Example: “he claimed he was the victim of a media witch-hunt”

18) Demonstrable

Meaning: Clearly apparent or capable of being logically proved.

Example: “the demonstrable injustices of racism”

Synonyms: Verifiable, Plain

Antonyms: Unverifiable

19) Defaulters

Meaning: Someone who does not pay interest or other money that they owe, or who fails to do something that they should do by law.

Example: The names of credit card defaulters are referred to credit rating agencies.

20) Take a hard look

Meaning: To examine something very carefully in order to improve it in the future.

Example: We need to take a long, hard look at the way we control gun ownership.

Synonyms: Thinking, Contemplating