How to prepare the future of India’s financial sector: CII’s Pre-Budget Memorandum 2021-22

This is necessary for India to move forward in the field of economic development.

India’s financial sector, particularly the lending side, is an important artery of the economy and its vibrant operations are an important pillar in India’s journey to the $ 5 trillion economy.

It is time to review India’s financial structure in a way that is comprehensive and can support the economic needs of India’s de facto sector.

The Confederation of Indian Industry (CII) Pre-Budget Memorandum 2021-22 states that India needs support from the financial sector to move towards development. “Credit flow is a lubricant for the real sector of the economy. The current state of the Indian banking sector however is acting as a barrier to India’s aspiration to become a $ 5 trillion economy, ”says NII.

There are different sectors of Indian banking sector – public sector banks (PSBs), private sector banks – non-banking finance companies (NBFCs) and cooperative banks are facing different challenges. PSBs operate under three key areas of public sector undertakings – autonomy of governance (from parliament – takeover, CEO and board appointments, accountability for competitive dynamics) and strategic measures such as HR autonomy, CII says.

The CII memorandum states that the central government should intensify its financial reforms:

  • Create several bad banks by allowing alternative loan funds (AIFs) to buy bad loans. So far, non-performing assets (NPAs) have largely been sold only to asset reconstruction companies (ARCs) and most are not for cash consideration. This means that the selling price was not a “true sale” as ARC could pay through security receipts (SR). SR is an instrument where payment is made only on the recovery of some money – a type of participation note.

Based on the recent Reserve Bank of India’s (RBI) data on outstanding SRs, the net recovery of the industry is estimated to be around 10-12 percent. The outstanding SRs stand at Rs 1.46 lakh crore.


This represents a “non-cash” consideration received by banks against loan sales. “Real cash against the sale of loans’ needs to increase the urge for recovery and increase the routes for capital for banks to compete for such loans to maximize realization.” The best way to achieve this is to open the buy side and enable a clear path to capital for NPA purchases. AIFs and Foreign Portfolio Investors (FPIs) may be allowed to buy NPAs and compete with ARCs, ”said CII.

The RBI has already considered this in a consultation paper, proposing that regulated entities may be allowed to purchase NPAs.



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