‘Develop a US-style online platform to sell bad loans’

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 per cent 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 per cent 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 per cent by March and to 11.1 per cent by September 2018. 

“The Indian Banks Association, Association of Asset Reconstruction Companies (Arcon) and the credit rating agencies can come together to set up what could be the equivalent to the Loan Syndication and Trading Association in the US,” Acharya told an ARC summit hosted by Assocham here. 

The Loan Syndication and Trading Association or LSTA is a loan syndication and trading system which provides disclosure on credit events, digitisation of loans and legal documents apart from providing an online bidding platform for the sale of such assets, Acharya said. 

“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.