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India expands bad debt task force


India is trying to claw back $125 billion of bad debt
India is trying to claw back $125 billion of bad debt

India’s central bank on Thursday (22) drafted more top bankers onto a special panel that will decide which companies owing more than $125 billion of crippling bad debt have to be rejigged or liquidated.

The Reserve Bank of India has already said that 12 companies with debts of two trillion rupees ($31 billion) could be restructured or even wound up unless lenders recover their money in the next six months.

The RBI named former vigilance chief Pradeep Kumar to head a five member panel to speed up the campaign to combat the bad debt crisis.

Formerly made up of just two members, the oversight committee has been expanded to handle more cases.

The RBI said it would also “expand the scope of cases to be referred” to the committee.

The stressed assets and bad debts in the Indian financial system threaten to become a drag on the economy and hold up new investment.

The RBI has not named the 12 companies targeted so far but a Credit Suisse report said the steel, textile and construction sectors are particularly troubled.

A financial source said that Jaypee Infratech, a major infrastructure builder with an estimated $1.5 billion in debt, was the latest company referred to an insolvency tribunal.

The International Monetary Fund has said India’s banks are saddled with some of the highest levels of bad debt and many analysts say the action is not tough enough.

The RBI action is “a little late in the day by at least a couple of years if not more,” said Abhishek Bhattacharya, a director at Fitch India.

“The bigger question is how will it all unfold. How you treat the assets will be key, as losses could be higher if not disposed off in the most efficient manner.”

KC Chakrabarty, a former RBI deputy governor, said the RBI should not be getting involved in such “micro management”.

“The NPA (non-performing assets) problem has to be solved by borrowers and banks. If you feel banks are not able to do this job, remove the senior management, this is what they’re paid to do,” he told AFP.

“It’s beyond my understanding how this RBI committee will help in resolving (the) NPA problem.”

With banks saddled with debt and unable to invest in industry, experts say many major projects are left half finished and the current economic growth rate of about seven percent is under threat.

“If you can’t invest money to use existing assets or finish incomplete ones, it’s a total waste, and if you don’t resolve these it will be an actual loss to the country, unlike just a notional loss of interest,” said Anil Gupta, vice president at Moody’s India unit, ICRA.