With the Gross Non-Performing Assets (GNPA) of 14.40% in 1998 to 12.05% in 2018, the problem of bad assets keeps chasing the banks in terms of credit growth, ability to raise capital and access to low interest rates.

Post the Global Covid Crisis, the banking and financial system will be staring at a big pile of high-risk loans estimated to be around USD 230 Bn to USD 240 Bn or 17%-18% of the total advances. With Insolvency and Bankruptcy Code put hold for one year, the only recovery options available for banks would be either monetisation or restructure the stressed loans, both of which have not had much impact in the reduction of stressed assets over the last 5 years.

Further, with the combined ammunition (ARC plus special situation funds) to combat the stressed loans at approx. USD 20 Bn, the mismatch here is more than 10 times of the demand. Necessarily, creating a demand to immediately address the situation through the creation of a sovereign sponsored Bad Bank.

Think Capital is delighted to present its analysis on stressed assets situation in India, challenges for monetization or restructuring of stressed loans and necessity to create a Bad Bank.

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