New Delhi, Jan 21: Reserve Bank of India deputy governor Viral Acharya on Sunday advocated the sale of distressed assets through a public auction to ensure more transparency and better price discovery. Citing the example of United States, Acharya said setting up an online trading platform will help in creating a thriving market for selling bad loans. Indian banks are struggling with bad loans of Rs 10 trillion. The central bank, in its report, expected that bad loans may shoot up by 10.8 per cent in March and to 11.1 per cent in September 2018.
After a rigorous investigation, the central bank found that as many as 40 largest stressed accounts, consisting of Essar Steel, Bhushan Steel, Bhushan Power, Amtek Auto, Videocon Industries and JP Infra, own 40 per cent of distressed loans.
“The Indian Banks Association, Association of Asset Reconstruction Companies (Arcon) and the credit rating agencies can come together to set up what could be the equivalent to the Loan Syndication and Trading Association (LSTA) in the United States,” PTI quoted Acharya as saying.
Acharya said loan syndication system will help in digitisation of loans and will enhance the chances of such sales. “Loan Syndication and Trading Association or LSTA is a loan syndication and trading system which provides disclosure on credit events, digitisation of loans and legal documents apart from providing an online bidding platform for the sale of such assets” Acharya said.
Citing the examples of the United States and South Korea, Acharya said the countries went through banking crisis and devised new system for transfer of loans. “My recommendation to you, or at least what I would encourage you, is to discuss whether there is value to building something like this or not. The US and South Korea have built such a platform during their banking crises and then it became an industry standard for doing loan sales thereafter,” the deputy governor said.