The banking system in India is facing the challenge of bad loans and the Reserve Bank of India (RBI) should focus on resolving it for the time being, an industry body has said.
Even though interest rates are benign, credit offtake has remained at historic lows, clearly pointing out that the biggest problem the economy is facing is stressed assets, Assocham said.
The estimated bad and stressed assets are at around Rs 7 lakh crore, it said, adding that the focus of the upcoming meeting of RBI's Monetary Policy Committee next week has to be on working closely with the government and banks to resolve the mounting non-performing assets (NPAs).
"Even though it may not be politically easy to allow banks to take hair cuts along with promoters of the troubled projects, the fact of the matter is such hair cut is already being taken by way of huge provisioning in balance sheets of the banks quarter after quarter," Assocham pointed out.
Suggesting different solutions for different cases, the industry body said "there is no point to be in denial mode".
"There would be cases where part of debt would have to be converted into equity; there could be cases where ownership, if necessary, of the projects could be changed," it said.
"Irrespective of ownership, assets which are losing value in stalled projects, leveraged projects and non-functional firms belong to the nation. By delaying resolution of the problem, we should not allow this asset to further lose value," Assocham Secretary General D S Rawat said.