As most steps taken so far to fight the problem of non-performing assets in banks fail, the idea of a Public Sector Asset Rehabilitation Agency (PARA) seems to be promising as well as optimistic. Do you agree? Argue.

Non Performing Assets have been rising since past years and have reached 9.2% of all bank loans. In wake of dismissal performance of other debt resolution mechanism like Strategic Debt Restructuring, 25/5 policy etc . Economic Survey 2016-17 suggested creation of Public Sector Asset Rehabilitation Agency or PARA an independent entity that will identify the largest and most vexatious NPA accounts held by banks, and then buy these out from them. 
PARA seems most optimistic option for following reasons:

  • It will resolve the debt issue plaguing the PSBs caused mostly by unexpected changes in the economic environment after the Global Financial Crisis, which caused timetables, exchange rates, and growth rate assumptions to go seriously wrong and some due to diversions
  • With 16.6 per cent of bank’s loan book tied up in stressed assets banks have been fighting shy of new lending. This is constraining new investments in projects that can power the economy.
  • If Government were to infuse fresh capital into public sector banks, there’s worry that this may go to write off older bad loans rather than kick-start lending.
  • Other mechanisms face severe coordination problems, since large debtors have many creditors, with different interests finding it hard–financially and politically—to grant sizeable debt reductions, or to take them over and sell them. This will resolve this issue.
  • Private run Asset Reconstruction Companies (ARCs) have not been successful  in resolving bad debt.

Though PARA is being seen as solution for resolving NPA issue but it is necessary that governance reforms are undertaken in PSBs to separate management and ownership to bring about efficiency and accountability.

Question for UPSC Mains:
"As most steps taken so far to fight the problem of non-performing assets in banks fail, the idea of a Public Sector Asset Rehabilitation Agency (PARA) seems to be promising as well as optimistic." Do you agree? Argue.
The Hindu | GKToday

Published: October 6, 2017 | Modified:October 15, 2020

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