Mumbai: The Reserve Bank has called for putting in place an online trading platform on the lines of the system in the US, to sell bad loans to ensure more transparency and better price discovery.
Deputy governor Viral Acharya has opined that such an online trading platform can help create a thriving market for selling bad loans, which is plaguing the domestic banking system and asked all the stakeholders to come together to develop such a mechanism.
The banking system is saddled with over Rs 10 trillion of bad loans, which is over 10.2% system-wide, as of the September 2017 quarter.
Following a massive spike in stressed assets, the RBI has since last June identified as many as 40 largest stressed accounts and have asked banks to send them to various debt recovery tribunals.
These 40 accounts, which include Essar Steel, Bhushan Steel, Bhushan Power, Amtek Auto, Videocon Industries and JP Infra among others, constitute as much as 40% of this Rs 10 trillion dud loans.
In the financial stability report released recently, the central bank had warned that the bad loans could spike to 10.8% by March and to 11.1% by September 2018.
“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.
Acharya said it is in the interest of banks to create primary market liquidity to offload loans and probably in the interest of asset reconstruction companies to have a secondary market for such assets.
The deputy governor also said if such a platform is developed then loan sales can occur for risk transfer, perhaps prior to default or becoming an NPA because, maybe somebody wants to come in even before an (Insolvency and Bankruptcy Code (IBC) filing takes place.