The resolution of banks’ big-ticket stressed assets, those above Rs 5 billion, would need funds worth Rs 800-900 billion from domestic and international investors. So believes Sunil Mehta, who chaired the panel which recently gave a report on resolution of stressed loans.
He told Business Standard that over a period of time, that much money would be required for resolution of these stressed loans, totalling Rs 3.1 trillion. Not insurmountable if raised over two years from a combination of domestic and global investors.
“The panel has spoken to domestic and international investors. There is strong interest,” he said. “Now, we have to start work to identify the person who will lead the entity, board members. The seed fund (for the Asset Management Company or AMC) has to come in, maybe about Rs 200 million. It would be a debt fund. Some banks have committed to chip in funds,” he said.
Mehta, also chairman of Punjab National Bank, said work will begin on an Alternative Investment Fund (AIF) in this regard. This needs long-term, patient, capital. “We will talk with domestic and international funds. The returns on stressed assets are quite different from bio-technology, information technology and private equity funds,” he said.
State Bank of India executives indicated they could put in Rs 100 billion for stressed asset resolution, with expectation of benefits on the upside.
In its recommendations, the panel’s report to the finance minister has suggested against setting up a bad loans bank. Instead, a five-pronged strategy to resolve non-performing assets (NPAs), depending on the amount.
The plan includes banks setting up a dedicated division to deal with smaller stressed assets of less than Rs 500 million and inter-creditor agreements to deal with loans between Rs 500 million and Rs 5 billion.
It also advised setting up asset management companies (AMCs) for loans above Rs 5 billion, with money raised through AIFs. The price discovery of these NPAs will be through open auction by the lead bank, with asset reconstruction companies (ARCs), AMCs and other investors free to bid. Also, setting up a trading platform for such assets.