Vol 19 (2022) - Issue 3

Article preview

Can Bad Banks Resolve India’s Mortgage Crisis in the Real Estate Industry?

Synopsis
An important highlight in the announcement of the 2021-2022 Union Budget is the emphasis on setting up a 'bad bank' to clean up non-performing assets (NPAs) that are currently plaguing the Indian banking economy and subsequently our credit market. The need of a bad bank is essential as the Indian real estate industry has been hit by a severe cash crunch due to a slump in the prices of property and subsequent halt in construction activities of new projects due to the outbreak of the COVID-19 pandemic. This has left several builders, developers, and promoters incapable of repaying their loans affecting the already bad loan crisis in the Indian banking economy. A bad bank would clean the balance sheet of these commercial banks, thereby enabling them to revive lending activities and boost credit growth in the market. This paper would answer the simple question of whether a wellstructured 'bad bank policy' would generate a fiscal reform that will solve the mortgage crisis in the real estate industry. The Indian real estate market economy is dynamic and lucrative. It attracts foreign investment and improves the growth and development of the people in India. There is a need to stimulate demand in order to initiate supply which would help incentivise the private sector to invest money (capital) into the real estate sector/industry. If the mortgage crisis worsens, then the State would have to autonomously invest to revive the market and provide stimulus for growth which would lead to increased public/state expenditure which would further harm the fiscal deficit. A bad bank, with the dual objective of cleaning up existing bad loans while ensuring that banks have the necessary means to introduce fresh capital to revive and stimulate growth in the credit market would help avoid this challenge.