Sitaram Yechury writes to PM Modi to reject proposal to create 'bad bank'

NEW DELHI: CPM general secretary

Sitaram Yechury

on Tuesday requested Prime Minister Narendra Modi to reject the proposal to create a “bad bank”.

In a letter to Modi, Yechury told PM to “start recovery of bad loans on priority.” “Anything less”, he said, “would be tantamount to dereliction of your constitutional duty as the prime minister of this country.”

Yechury argued that big borrowers have viable assets which can be easily recovered by banks, if backed up with political will and determination. “Instead, we have seen a proposal to divert all the bad loans from state-owned banks by creating a single ‘bad bank’. It is an attempt to portray a clean-up of bank account books by diverting the bad loans to a separate new entity, which will still be government owned,” he wrote.

CPM general secretary said proposed "bad bank" will still be furnished by public money as all the other banks will be recapitalised by government, while big borrowers would be allowed to go scot free at the cost of the honest tax-payer. “This amounts to the cronies being rewarded for their profligacy, bad business practices and their lavish personal lifestyles by the hard earned savings of the vast majority of the middle classes and the poor of this country,” he said.

Yechury said “before any attempts at whitewashing the bad loans by recapitalising the banks, the principle of ‘Recovery First, Recapitalise Later’ must be followed in letter and spirit of your government.” He argued that if not done, it “would confirm our worst fears of your government --which has written off Rs 1,12,089 crore of loans of big borrowers -- being beholden to crony capitalism.”

Yechury also pointed out that the proposal to create a ‘bad bank’ was publicly rejected by the former RBI governor, Raghuram Rajan. “He had identified the 'moral hazard' problem of this proposal, where the banks would continue to lend to the same big borrowers who would display scant regard for returning these loans,” Yechury said.