Veteran bankers from public sector banks (PSBs) will be roped on deputation to get the so-called ‘Bad Bank’ off the ground. This bank is being floated to clean up the books of PSBs.

With the Indian Banks’ Association (IBA) and the Department of Financial Services (DFS) putting the formation of the Bad Bank on fast-track, bankers feel deputation is the best option as inviting applications for filling various positions, shortlisting eligible candidates and interviewing them could be a drawn out process.

In the run-up to the formation of the Bad Bank, the association has already asked banks to furnish data on stressed accounts with principal outstanding above ₹500 crore, both under consortium and multiple banking arrangement.

The IBA is likely to sound out PSB chiefs for deputing officials in the top executive grade – General Manager and Deputy General Manager – with experience in dealing with recovery cases.

The Bad Bank, which is envisaged as an ‘Asset Reconstruction Company (ARC) - Asset Management Company (AMC)’ structure, may also take outside professional help.

Precedents to deputation

There are precedents to deputation when the bank sector undertakes joint initiatives.

For example, the erstwhile Corporate Debt Restructuring (CDR) Cell had staff deputed from lenders such as IDBI Bank, State Bank of India, and ICICI Bank, among others.

More recently, the ‘Doorstep Banking Services’ initiative of PSBs has senior officials drawn from various banks on deputation to oversee its rollout across the country.

Bad bank is actually a good idea

The association is working with the Department of Financial Services and a few lenders to set up the Bad Bank, pursuant to the announcement in this regard by Finance Minister Nirmala Sitharaman in the Union Budget.

The move to set up a Bad Bank comes in the backdrop of the macro stress tests conducted by the Reserve Bank of India indicating that the gross non-performing asset (GNPA) ratio of all scheduled commercial banks may go up from 7.5 per cent in September 2020 to 13.5 per cent by September 2021 under the baseline scenario.

This ratio may escalate to 14.8 per cent under a severe stress scenario, cautioned the RBI in its latest Financial Stability Report.

In her Budget speech, Sitharaman observed that the high level of provisioning by public sector banks on their stressed assets calls for measures to clean up their books.

In this regard, she said an ARC and AMC would be set up to consolidate and take over the existing stressed debt and then manage and dispose of the assets to Alternate Investment Funds (AIFs) and other potential investors for eventual value realisation.

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