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Npa and mediated settlements

The balance sheets of banking sector shows signs of severe stressed   with one-sixth of the gross advances of public sector banks (around Rs.7 lakh crore) being non-performing assets (NPAs). There are defined remedies for  restructuring,  insolvency,  and  securitisation of debts yield but it just ends up in much litigation and insufficient recoveries. The Corporate Debt Restructuring scheme of  Reserve Bank of India  has failed to deliver substantially.

The latest kid on the block is the concept of a “bad bank”, which would purchase the large loans from the holding banks so that the latter can ease their balance sheets. There are major roadblocks to settlements. The major one is mismatch between high demands by banks and low offers by the debtor.

Mediation  is designed to freely create, explore and refine options so as to reach sustainable and amicable solution which are enforceable without difficulty. If RBI can use mediation and set up panels consisting of accountants, bankers, and experienced mediators, it should be able to provide a institutional framework  which has credibility in the process and personnel.

The other major block  is the fear of post-decisional retributive action. In government and public sectors in India, investigation and prosecution by multiple agencies such as the police, the Central Vigilance Commission (CVC), the Central Bureau of Investigation (CBI), the Lokpal, etc paralyses decision-making. Setting up a  high-level body  headed with high authority offering mediated solutions with protection for sound decision-taking can help the case.

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