Economic Survey moots formation of public sector asset rehabilitation agency

New Delhi: The Economic Survey 2016-17 tabled in Parliament on Tuesday by Finance Minister Arun Jaitley has mooted the formation of a centralised public sector asset rehabilitation agency (PARA).

According to the survey, the country is grappling with a `Twin Balance Sheet` (TBS) problem of over-leveraged companies and bad-loan-encumbered banks, a legacy of the boom years around the global financial crisis.

"So far, there has been limited success. The problem has consequently continued to fester: Non-performing assets (NPAs) of the banking system (and especially public sector banks) keep increasing, while credit and investment keep falling," the survey said.

"Now it is time to consider a different approach -- a centralised PARA that could take charge of the largest, most difficult cases, and make politically-tough decisions to reduce debt."

As per the survey, gross NPAs has climbed to almost 12 per cent of gross advances for public sector banks at end-September 2016.

"At this level, India`s NPA ratio is higher than any other major emerging market, with the exception of Russia. The consequent squeeze of banks has led them to slow credit growth to crucial sectors -- especially to industry and medium and small scale enterprises (MSMEs)-- to levels unseen over the past two decades," the survey elaborated.

"As this has occurred, growth in private and overall investment has turned negative. A decisive resolution is urgently needed before the TBS problem becomes a serious drag on growth."