The ‘#BadBank ‘ is finally here it seems. All approvals, including RBI’s ok have been received.
It isn’t the panacea, however. While the PSB balance sheets in particular will start looking cleaner, the systemic ‘junk’ will continue to linger. The resolution of first tranche of 50K crores being transferred now, will take time to resolve. There is another 33K Crs in the pipeline. Considering the legacy, there are no easy exits and haircuts are likely to be high.
However, it does provide another strong institutional mechanism to handle banking stress. It should be seen as part of a wholistic ‘overhaul’ mechanism including
1. IBC
2. AQRs, PCA framework
3. 28 ARCs
4. Mergers of weaker banks and
5. NARCL (Bad Bank) for large ticket exposures (>500 crs)
Hopefully, we are past the ‘nexus’ and influence based lending and COVID notwithstanding, Bank balance sheets will continue to grow stronger from here.