Indian Economy News

Government to set up fund for banks' stressed assets

New Delhi: The government is looking to set up a special fund to tackle the issue of stressed assets. This is expected to be part of the National Investment and Infrastructure Fund (NIIF), which would be like India's sovereign wealth fund. Although banks are seeing a slowdown in growth of fresh non-performing assets (NPAs), they are grappling with a huge pile of bad debt due to problems in certain companies and some sectors such as metals, and inability of several infrastructure projects to take off.

In an interview, minister of state for finance Jayant Sinha told TOI that the proposed special situations fund will deal only with projects that are viable and can be nursed back to health. "We have capitalized the (public sector) banks to deal with the provisions and we are taking action, including through the National Investment and Infrastructure Fund. We have the ability to find and potentially take over those assets which are viable but don't have fresh equity coming in," he said, adding that the NPA situation has stabilised. The proposed mechanism will help take the stressed assets off the balance sheets of banks and reduce pressure on them.

NPAs of Indian banks are pegged at 4.2% of total loans with public sector banks having a disproportionately higher share. Total stressed assets, comprising gross NPAs and standard restructured assets, are estimated at over 11% of total loans extended by the lenders. Although the situation at some banks such as Punjab National Bank has improved, Bank of India and Indian Overseas Bank are still reporting losses due to the huge pile of bad debt.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.

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