Finance ministry mulling shore-up certificates to ease NPA burden

With the help of this instrument, the operating profit of bank is saved from erosion and the lender would be able to focus on lending activities as being in financially good shape.

The finance ministry is working on innovative ways to deal with bad loan burden, and one of them is the issuing of provision shore-up certificates (PSC) to banks.
 
With the help of this instrument, the operating profit of bank is saved from erosion and the lender would be able to focus on lending activities as being in financially good shape.
 
Under this scheme, the bank concerned will get PSC to the extent of its provision against the bad loans and conserve its capital. The capital can then be used for expanding core business of lending.
 
The certificates can be redeemed as and when bad loans are resolved.
 
“The Prime Minister’s Office has passed on a representation-…we are looking at it,” a senior finance ministry official told ET. 
 
As per him, the idea is on the lines of the structure created to bail out the US-64 scheme of the Unit Trust of India. 
 
An ET report quoting officials said a special trust would take over the underling provisioned asset for monitoring, recovery and unlocking value, using the Insolvency and Bankruptcy Code. 
 
The certificates will not be like bad bank that takes over the stressed asset. In this case, the bank only assigns the stressed assets and will receive PSCs only to the extent of provisions made.
 
This will free the banks of the stressed assets as PSCs would shore up their capital, allowing them to lend more. The government would pay the interest on PSCs. 
 
The gross non-performing assets (NPAs) of all the banks amounted to Rs 840,958 crore in December 2017.
 
The gross NPAs or bad loans of scheduled commercial banks as on 31 December 2017 due to loans to industry were at Rs 609,222 crore.
 
The country’s largest lender State Bank of India (SBI) is burdened with the highest amount of gross NPAs worth Rs 201,560 crore. 
 
Source: PTI, ET, Media reports

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