Reserve Bank of India has been requested by the local government to buy out stressed assets from the country’s top 25 shadow banks to revive the financial sector.

India’s financial system faces 9 trillion rupees ($127 billion) of bad loans and its federal government is considering a central bank-backed bailout program akin to the U.S. Troubled Asset Relief Program (TARP) launched following the 2008 crisis. 

«Talks are on and various rounds of discussions have happened with the central bank on a mini TARP-like program,» said a «Reuters» report, citing an unnamed government official. «RBI could be the buyer of last resort.»

The federal government has suggested a buyout of stressed assets from the country’s top 25 shadow lenders through a fund set up by the RBI. It has also proposed a one-off waiver for real estate loans classified as bad loans.

Reluctant RBI

The national economy has registered five straight quarters of declines and is projected to post the sixth consecutive one in the upcoming data release.

This has been aided in no small part to the 2018 collapse of one of India’s largest finance companies, Infrastructure Leasing & Financial Services, and has led to a credit crunch which continues to loom large. According to central bank data, such shadow lenders represent 30 percent of auto loans and more than 40 percent of home loans, as of December 2018.

According to the unnamed official, RBI views a large bailout program relying on its balance sheet as overly drastic and wants to further discussion before making any moves.