"We have discussed it (setting up an asset reconstruction company), but you see the problem so far is that opinions are almost vertically divided on the issue," a senior government official told media.

According to some bankers, setting up a 'bad bank' would be a sound thing to do given the current situation where PSU banks are burdened with mounting non-performing assets (NPAs) or bad loans.

"As a concept it (bad bank) is good. It has to be structured in such a way that it efficiently functions. It's not a bad idea given the current times," Punjab National Bank Managing Director Usha Ananthasubramanian said.

Few bankers, on the other hand, have also expressed the concern that banks would tend to shift their stressed assets to such institution and it may lead to laxity on part of the lenders.

Reserve Bank of India Governor Raghuram Rajan had said recently that there was "no need" to set up a separate bad bank to deal with stressed assets of public sector lenders.

Rajan had also said that the pricing of assets of a government-owned bad bank could get entangled with the Comptroller and Auditor General or the Central Vigilance Commissioner.

Finance Minister Arun Jaitley had said last week that the government is considering more steps to empower banks to recover bad loans and the problem will be contained soon.

As on September, the gross NPAs of PSU lenders have increased to Rs 3.01 lakh crore as against Rs 2.67 lakh crore in March.

Read more: Supreme Court asks RBI to give list of defaulters of over Rs 500 crore loan

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