Raghuram Rajan and Viral Acharya have suggested three ways to tackle the problem of bad loans.
Former Governor of Reserve Bank of India (RBI) Raghuram Rajan and Deputy Governor of RBI Viral Acharya together suggested improving the health of the Indian banking sector. Both economists have become involved in academic activities after their tenure at RBI. Both have suggested in a research paper the problems of the banking sector of the country and their solutions so that the sector can be strengthened. He has specifically mentioned public sector banks. The credit to GDP ratio in India may below, but the banking system has the highest NPA ratio in the world. Both former RBI bankers have mentioned this in their paper.
Raghuram Rajan is currently a professor at the University of Chicago. Viral Acharya resigned as deputy governor of RBI in July last year, about 6 months before his 3-year tenure.
How to deal with bad loans?
Raghuram Rajan and Viral Acharya have suggested three ways to tackle the problem of bad loans. Both bankers of the central bank said an out-of-court restructuring framework could be designed for negotiation between the creditors of the stressed company in due time. Failure to do so should apply to the National Company Law Tribunal (NCLT). He said that one should consider developing an online platform for the sale of stranded debt. With this, real-time transparency will be seen in loan sales. Finally, Rajan and Acharya say that private asset management and national asset management ‘bad banks’ should be encouraged parallel to online platforms for stressed loan sales.
PSU banks improve
In the research paper on reforms in public sector banks, it has been suggested to give relaxation to the board and management of PSU banks independently. Rajan and Acharya have proposed to form a holding company for the government stake. This is a proposal that has been given by several committees on banking reforms in the last three decades. Another suggestion is about the payment given by the government to banks to meet their mandatory goals. Both economists say that banks can reimburse costs for activities such as account opening.
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