SHAPING INDIA'S BAD BANK
After the East Asian currency crisis in 1996-97, Malaysia set up two asset management companies (AMCs) — one for buying bad loans from banks and another for injecting fresh capital into weak banks. Both were shut down after seven years. Around the same time, South Korea set up Korea Asset Management Corporation for five years to buy bank loans. It made huge profits by turning around the assets. China, in contrast, opted for four government-led AMCs. One of them, China Hua-rong Asset Management Co, is seeking a bailout.
Can these different models guide Indian government, regulators and bankers as they gear up to tackle the fresh round of non-performing assets (NPAs) that are building up as a result of businesses getting hit by successive Covid waves? The Indian financial sys-tem, which entered the Covid crisis with 8 per cent gross NPAs, seems to be pinning a lot of hope on the central government’s move to build a platform — Na-tional Asset Reconstruction Company Ltd. (NARCL) — for transferring bad loans of mostly public sector banks (PSBs).
In a parallel move, the Reserve Bank of India (RBI) has initiated the first big overhaul of ARC regulations in 20 years. An ARC buys bad loans from banks at
