Editorial: The Economic Times

Bad loans: Time for government to take remedial (Tending or intended to rectify or improve) action

Banks Board Bureau chairman Vinod Rai has written to the finance minister and the Prime Minister’s Office about the need to expedite (Speed up the progress of; facilitate) restructuring of the banks’ bad loans portfolio (Case). He has reportedly suggested expanding the role of the Oversight Committee and some technical refinements (The result of improving something). But the problem holding up (Delaying) bad loan restructuring is not technical in nature — rather, it is political. Loan restructuring will entail (Impose, Involve, imply) banks taking a haircut, substantial (Fairly large) in many cases. Bank chairmen want the assurance that they would not be held responsible for this. No one wants to go to jail for causing loss to state owned banks and, thereby, to the exchequer (treasury). This means that the government must give them political cover. That is the nub (Core, center) of the challenge.

After its electoral success in Uttar Pradesh, the Narendra Modi government has the political capital to push for banks to take some discounts on loans that have gone sour, convert debt to equity and find new buyers for these. The government has been hesitant (unable to act or decide quickly or firmly, hesitate) to push very hard on this, because it fears that it will be accused (Criminated, Charge) of crony capitalism (An economic system based on private ownership of capital) by opposition parties. Today, with increased political capital, New Delhi must not run from opposition jibes (An aggressive remark directed at a person like a missile and intended to have a telling effect).

The reassurance (Support) to public sector bank managements that they will not be hounded (Pursue or chase relentlessly) for accepting haircuts to clear up their books, by agencies like the Central Bureau of Investigation and the Enforcement Directorate, is essential to resolve the banking crisis. Otherwise, the bank liquidity crisis and NPA levels will spiral out of control, choking (Breathe with great difficulty, as when experiencing a strong emotion) lending and growth. In other words, spurring (Anything that inspires, motivates or drives you to do something) further investment and growth in the economy hinges (A joint that holds two parts together so that one can swing relative to the other, flexible joint) on political rather than technocratic decisions. The point is for the government to lose no further time to take remedial action.