'The Unfinished Agenda': Viral Acharya on the Need For a 'Concrete' Plan to Restore the Health of PSBs

Former RBI deputy governor Viral Acharya's latest book, Quest For Restoring Financial Stability In India, uses the Japanese asset price bubble burst of 1992 and the European debt crisis, and their subsequent impacts on the respective banking sectors as lessons for the Indian banking sector, which, according to Acharya is going through a 'silent crisis'. In the book, Acharya first turns to consider the positives of the balance sheet resolution agenda that the RBI and the GoI have embarked upon and then highlights the unfinished part of this agenda — its Achilles’ heel — the lack of a clear and concrete plan for restoring PSBs health. The RBI has now advised banks to resolve some of the other accounts by December 2017; if banks fail to put in place a viable resolution plan within the timelines, these cases also will be referred to for resolution under the IBC. Acharya adds that although there is a due process for stressed assets to resolve in place, there is no concrete plan in place for PSBs’ balance sheets; how will they withstand the losses during resolution and yet have enough capital buffers to intermediate well to the huge proportion of economy’s savings that they receive as deposits.