Independent panel to help state-owned banks

India is considering setting up an independent panel to help state-owned banks negotiate settlements with big businesses on bad loans.

Background:

India’s $121 billion troubled debt pile, over $100 billion of which is on the books of state-owned banks, has come under close scrutiny from prosecutors, media and politicians. Some have blamed banks for going too easy on corporate tycoons, and do not want taxpayers propping up the struggling banking sector.

What has been proposed?

The decision-making will be much better under an independent panel. The proposal envisages setting up a panel comprising leading bankers and government and central bank officials, to review some larger outstanding loans and try to arrive at a settlement. There is also a suggestion to include judges in the panel. The proposal would give the panel power to define the “haircut” a bank should face on a loan gone sour.

Why create a panel for this?

Bad debt has hampered banks’ ability to lend, threatening to throttle a nascent economic recovery. RBI Governor Raghuram Rajan has also set a deadline of March 2017 for banks to clean up their books.