The alternate investment fund proposed by state-run banks under the five-pronged resolution plan drafted by them will look to raise funds from domestic investors and sovereign wealth funds, said Sunil Mehta, chairman of Punjab National Bank. Mehta headed a committee that drew up a detailed plan for resolution of stressed assets.
Under the structure proposed to the government, the asset management fund would allow promoters to retain a less than 24% in the assets which it takes over for resolution, Mehta told ET explaining some of the points of the plan. Finance minister Piyush Goyal on Monday said the government had accepted the proposals and that there could be more than one such AMCs. The initiative has been dubbed ‘Project Sashakt’. Banks will consolidate their loans and approach the proposed asset management company for a faster and transparent resolution of loans, Mehta told ET.
“The lead bank in these cases, through inter creditor agreement, will be authorised to consolidate the asset spread across different lenders and invite bids through open auction,” he said. The proposed AMC can also bid for these loans along with other interested parties such as asset reconstruction companies.
Mehta said the AMC would follow all the extant guidelines including that under the Bankruptcy Code. “So, the AMC will have the controlling stake, and it will look to turn around the asset as it will have a team of sectoral specialists and resolution professionals,” he added. “The promoter economic ownership will fall below 24%,” said Mehta. This is expected to offer the AMC enough room to repair the asset without interference from other owners.
State-run banks are expected to take the lead in setting up the AMC for the resolution of loans above Rs 500 crore under the five-pronged plan presented by the committee. The proposed alternate investment fund will look to raise funds from domestic investors and will be open to sovereign funds as well. It will not raise funds from other categories of foreign investors.
“There could be more than one AMC and the structure would be a market maker,” Mehta said, adding that a lot of potential investors in stressed assets feel tied-up because the processes to buy these assets are too cumbersome and long drawn.
“Now we will have a fair and transparent process. For the lenders it is beneficial given that the security receipts will be redeemed in two months flat providing them liquidity and growth capital,” he said. The committee has recommended a five-pronged approach for loans up to Rs 50 crore, between Rs 50 crore and Rs 500 crore, and above that. Mehta said the approach to resolve loans of small and medium enterprises will be a game-changer as there will be time bound resolution of such assets.
Under the SME Resolution Approach, loans up to Rs 50 crore would be dealt with using a templated approach supported by a steering committee and the resolution will be completed within 90 days.