CII’s 2021-2022 pre-budget memorandum explores how to prepare for the future of India’s financial sector


For India to move on an upward growth curve, securing support from the financial sector is essential.

India’s financial sector, especially the lending side, is a vital artery of the economy and its dynamic operations are a key pillar in India’s journey to a $ 5 trillion economy.

It is time to review the financial structure of India in a comprehensive manner capable of meeting the economic needs of the real sector of India.

According to Confederation of Indian Industry (CII) pre-budget memorandum 2021-22, India needs to shift onto an upward growth curve, securing financial sector support is essential. “Credit flows are the lubricant of the real sector of the economy. The current state of India’s banking sector, however, acts as a constraint on India’s aspiration to become a $ 5,000 billion economy, ”CII says.

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India’s banking sector comprises different segments – public sector banks (PSBs), private sector banks – non-bank financial corporations (NBFCs) and cooperative banks face different challenges. PSBs operate under three key areas of constraints – governance autonomy (from parliament – for strategic moves such as acquisition, CEO and board appointments, responsiveness to competitive dynamics) and HR autonomy, adds CII.

The CII note indicates that the Union government should further accelerate its financial reforms by:

  • Create several bad banks by allowing alternative investment funds (AIFs) to buy bad loans. Currently, non-performing assets (NPAs) have largely been sold to asset reconstruction companies (ARCs) only and mostly without cash consideration. This means that the sale price was not a “real sale” since CRAs could pay by way of Guarantee Receipts (SRs). SR is an instrument where payment is made only when a sum of money is collected – a kind of participatory note.
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Based on recent data from the Reserve Bank of India (RBI) on outstanding SRs, the industry estimates that net recovery is only around 10 to 12 percent. Exceptional SRs are Rs 1.46 lakh crore.


This represents the “non-monetary” consideration received by banks for loan sales. “The urgency is to increase the possibilities of realization ‘in cash’ against the sale of loans and to increase the possibilities of capital to compete for these loans in order to maximize the realization for the banks. The best way to do this is to open up the buy side and allow capital to flow clearly for the purchase of NPAs. AIFs and foreign portfolio investors (REITs) may be allowed to buy NPAs and compete with ARCs, ”the CII note says.

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The RBI has already considered this in a consultative document in which it was proposed that regulated entities be allowed to purchase NPAs.



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