Mumbai: Industry body CII today said it supports the 'bad bank' idea mooted by interim finance minister Piyush Goyal, while stressing that banks' balance sheets need cleanup before the start of a new credit cycle.
"The CII has been in favour of setting up the bad bank, because we need to resolve the NPAs from the banks' balance sheets so that the the credit cycle can start moving forward," its president Rakesh Bharti Mittal, who is also the vice-chairman of Bharti Enterprises, told reporters here.
Banker Uday Kotak, who will succeed him as the head of the industry body, chose to be a bit circumspect and decided to wait for specifics. "The owner of these banks, being the government, is thinking and evaluating out-of-the-box solutions to the fact that some of this (bad assets) needs to find a solution," Kotak said, adding we should wait for the fortnight before the specially-appointed committee submits its report.
It can be noted that last week Goyal had declared the formation of a committee headed by Punjab National Bank chairman Sunil Mehta to assess whether we can have an asset reconstruction company or an asset management company, which will house all the sour assets of the state-run lenders.
This is popularly referred to as 'bad bank', and there is a stark divide on whether the government should have such an entity at all or not. In a note, foreign brokerage Bank of America Merill Lynch said it welcomes the Mehta committee announcement and added that the risks for state-run lenders are "overdone".
"We expect the ministry of finance to continue to pro-actively recapitalise PSU banks. This is fiscal deficit neutral (barring interest paid) as PSU banks buy the government's recapitalisation bonds with the capital injected by it," it said.
Kotak said the total quantum of bad assets has crossed over Rs 10 trillion and there is a need for some strong action. The committee is a set of "very knowledgeable people" and "we should wait for it (their report)", he said.
Mittal stressed that mistakes of the past should not be repeated in the future and banks need to be made more accountable for all the loans given out in the future. When asked about the spate of frauds at state-run lenders and also allegations of conflict of interest and non-disclosure against ICICI Bank chief executive Chanda Kochhar, Kotak said banks need to judiciously use depositor money so that people's trust in them prevails.
Kotak, who had headed a Sebi-appointed committee on corporate governance, however, declined to comment on specific instances saying it will be "inappropriate" for him to speak on the problems of other lenders.
The CII today announced that it will come up with a voluntary model code of conduct for its members, including one especially for the financial sector.