The political economy of India’s bad bank
A bad bank should not get labelled in public discourse as a government 'bailout' of crony capitalists
The idea of setting up a centralized public asset management company (PAMC) or “bad bank" to solve the problem of stressed loans is gathering steam. The Economic Survey 2016-17 proposed the setting up of a public sector asset rehabilitation agency (PARA), which is essentially a centralized bad bank. In a recent speech, Reserve Bank of India (RBI) deputy governor Viral Acharya said there is a “sense of urgency" to decisively resolve Indian banks’ stressed assets. One of his proposed solutions is the creation of a PAMC for sectors in which assets are economically unviable in the short-to-medium term, like the power sector. A day after the speech, chief economic adviser Arvind Subramanian re-emphasized the need to create a bad bank “quickly".