Finance minister Piyush Goyal on Monday said that government has accepted a report submitted by a committee of bankers led by Punjab National Bank chairman Sunil Mehta.
Sunil Mehta committee on bad loans resolution has recommended a 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, AMC/AIF led resolution approach, NCLT/IBC approach, and asset-trading platform.
“An independent AMC would be setup, and AIF would raise funds from institutional investors,” said Goyal adding that the government will have no role in this initiative.
“AMC/AIF will become a market maker and ensure healthy competition, fair price and cash recovery,” he said adding that there was no proposal to set up a bad bank.
There could, however, be more than one AMC, said Goyal.
Country’s largest bank, State Bank of India said that they will be open to take lead. “Each bank can take its own decision, we are ready to take the initiative,” said its chairman Rajnish Kumar.
Goyal noted that this will lead to banks’ focus coming back on credit growth and they will be able to lend to good borrowers.
The report recommends a five pronged approach for loans from Rs 50 crore, Rs 50-500 crore and loans above Rs 500 crore.
There are about 200 accounts, each of which owe more than Rs 500 crore to banks and the total exposure is about Rs 3 .1 lakh crore.
The committee has also suggested an asset trading platform for both performing and non-performing assets.
Under the SME Resolution Approach (SRA), loans up to Rs 50 crore would be dealt using a template approach supported by a steering committee and resolution will be completed in a time bound manner within 90 days.
The Mehta Committee has further proposed a Bank Led Resolution Approach (BLRA) for loans between Rs 50 and Rs 500 crore. 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 be resolved through Bankruptcy Code.
Goyal said the recommendation of the committee are complaint with extant regulations and aim operational turnaround to retain value of assets created for national benefit.
The finance minister said that the recommendations further aim to prevent job losses from foreclosures and create additional employment by reviving businesses.
“This will ensure a robust governance and credit architecture is put in place to prevent similar build up of NPAs in the future,” he said.
The gross non performing assets (NPAs) of PSBs stood at Rs 7.77 lakh crore at end-December 2017.