The high-level committee on restructuring stressed assets and creating more value for public sector banks (PSBs) has suggested a transparent market-based solution with a focus on asset turnaround to ensure job protection and creation.
Accepting the report submitted on Monday by the committee headed by Sunil Mehta, Non-Executive Chairman of Punjab National Bank, Interim Finance Minister Piyush Goyal said the recommendations are fully compliant with RBI regulations, and that there is no proposal to create a “bad bank”.
According to the committee, Goyal said, the idea behind Project Sashakt is to ensure the operational turnaround of the banks and stressed companies so that the asset value is retained.
The resolution process suggested by the committee will also help bring in credible long-term external capital to limit the burden on the domestic banking sector while ensuring robust governance and credit architecture to prevent a similar build-up of non-performing loans in the future, the Minister said.
The five-pronged resolution route — outlining an SME resolution approach, bank-led resolution approach, AMC/AIF led resolution approach, NCLT/IBC approach, and asset-trading platform — envisaged by the committee will be applicable to smaller assets with exposure up to ₹50 crore, mid-size assets between ₹50 crore and ₹500 crore, and large assets with exposure of ₹500 crore and more which have a potential for turnaround.
The resolution route is also applicable to larger assets already before the National Company Law Tribunal (NCLT) and any other asset whose resolution is still pending.
The process will cover both performing and non-performing assets.
For the resolution of SMEs, the committee suggested the setting up of a steering committee by banks for formulating and validating the schemes, with a provision for additional funds. Stating that the resolution should be complete within 90 days, the committee suggested that the resolution of these assets be under a single bank’s control, with the bank having the liberty to customise it.
For loans between ₹50 crore and ₹500 crore, the committee called for a bank-led resolution approach, with the resolution being achieved in 180 days. The resolution plan has to be approved by lenders holding at least 66 per cent of the debt, it added.
The independent steering committee appointed by the Indian Banks Association (IBA) has to validate the process within 30 days. In this category, the key challenge would be to arrive at a consensus, as the exposure is held by multiple banks/lenders.
AMC to be set up
For loans above ₹500 crore, an independent asset management company (AMC) will be set up.
The committee also said an alternative investment fund (AIF) would raise funds from institutional investors. Banks would be given an option to invest in this fund if they wish. AIFs can also bid for assets in NCLT, it said.
The lead bank can discover price discovery through the open auction route. Security receipts have to be redeemed within 60 days, the committee said.