India: Govt has a 5-point strategy to deal with NPAs: FM

  • State run banks will take lead in setting up an asset management company (AMC) for resolution of loans above INR5bn. They will also set up alternate investment funds to raise money and back this asset management company.
  • Finance minister Piyush Goyal on 2 Jul 18 said that government has accepted a report submitted by a committee of bankers led by Punjab National Bank chairman Sunil Mehta.
  • The five-pronged strategy — Project ‘Sashakt’ — to deal with Non-performing Assets in the country’s banking system, Piyush Goyal said. The five-pronged strategy includes — SME resolution approach, bank-led resolution approach, Asset Management Companies (AMC)/Alternative Investment Fund (AIF) led resolution approach, NCLT/IBC approach, and asset-trading platform.
  • Goyal said that there are about 200 accounts, each of which owes more than INR5bn to banks. Their total exposure is about INR3.1tr.
  • Under this approach, independent asset management companies would be set up. AIF would raise funds from institutional investors. The AMC, to be set up under AIF framework, will become a market maker and will thereby ensure healthy competition, fair price and cash recovery, the minister said
  • The committee has also suggested an asset trading platform for both performing and non-performing assets. The finance minister also said the committee did not recommend setting up a ‘bad bank’ to deal with the mounting NPAs in state-own banks.
  • The panel has also suggested a plan for dealing with bad loans up to INR0.5bn. Under the SME Resolution Approach (SRA), loans up to INR0.5bn would be dealt using a template approach supported by a steering committee. The panel has recommended that the resolution should be non-discretionary and completed in a time bound manner within 90 days.
  • The Mehta committee has proposed a Bank Led Resolution Approach (BLRA) for loans between INR50 and INR0.5bn. This segment has an exposure of over INR3tr.
  • Under the BLRA approach, financial institutions will enter into an inter-creditor agreement to authorise the lead bank to implement a resolution plan in 180 days.
  • The lead bank would then prepare a resolution plan including empanelling turnaround specialists, and other industry experts for operational turnaround of the asset.
  • In case the lead bank is unable to complete the resolution process within 180 days, the asset would go to NCLT.
  • The gross non-performing assets (NPAs) of PSBs stood at INR7.77tr at end-Dec 17. Total NPAs of all banks, including private ones, were a whopping INR8.99tr.

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