new delhi bad ideas keep returning to the corridors of power in new delhi with the unfailing regularity of migratory birds this year is no exception according to media reports some kind of a stateblessed asset manager to take over the distressed assets of indian lenders is being considered againthe proposal to set up a bad bank looked senseless even when it was first mooted in early 2016 it looked downright silly when the finance ministry floated the idea of raiding the central banks reserves to run the rehab clinic for toxic debtas much as 90 per cent of nonperforming assets are with staterun banks suppose theyre asked to unload the mess into something like sareb the spanish bad bank whose shareholders include banco santander sa and caixabank sa among others sareb investors are set to lose 73 per cent of their original investment if the same happens to indian lenders equity taxpayers might end up paying over and above the 32 billion recapitalization for which theyre already on the hookthe whole point of having a bad bank is to discover and recover the steadystate economic value of assets that may be currently depressed in sarebs case the task was relatively easy because boombust cycles in real estate the recipient of spains lending binge are fairly predictable certainly more so than the economics of indian power plants about 12 per cent of the countrys total power generation capacity is in financial distressbesides sareb assumed the loans of savings banks after a 456 per cent reduction in their carrying value to compensate the proposed indian bad bank for underrecovery risk exposing lenders to a haircut of even 50 per cent may not be adequate according to jefferies analysts nilanjan karfa and harshit toshniwal given just how capitalstarved some of the 21 staterun banks are having them book steep upfront losses on sales would necessitate immediate consolidation or in some cases closure that would mean taking on powerful unions the maneuver makes sense only if unclogging balance sheets restores lenders profitability to a point where they can absorb future losses on their badbank investment with a respected former central bank governor saying that confidence in statecontrolled lenders is at a historic low miracles cant be the basecase scenariobesides for a decisive turnaround there must be parallel efforts to improve governance risk management and underwriting standards the urgency with which politicians and bureaucrats are looking for a solution is directly proportional to the existential threat to indias governmentdominated banking sector take away the hanging sword and the pressure to reform may also ebbso why then a bad bank a year has elapsed and bankruptcy resolution which was supposed to take no more than 270 days has so far been successful with only two large debtors out of an original list of a dozen meanwhile the central bank the regulator has taken away lenders leeway to extend and pretend theyre now being forced to make aggressive loanloss provisions but wheres