With an aim to resolve the problem of stressed assets with public-sector banks, the government has come out with a new plan - Sashakt - that includes the creation of one or more widely held asset management companies for loans above Rs 500 crore.
With an aim to resolve the problem of stressed assets with public-sector banks, the government has come up with a new plan – Sashakt – which includes creation of one or more widely held asset management companies for loans above Rs 500 crore. The government describes the latest plan to be a banks-led, five-pronged, comprehensive project that doesn’t involve any regulatory forbearance or an immediate government involvement.
However, the committee headed by PNB non-executive chairman Sunil Mehta didn’t propose a ‘bad bank’. It said in case of large stressed accounts, an alternative investment fund (AIF) would raise funds from institutional investors. There are more than 200 accounts amounting to Rs 3.1 lakh crore with exposure spread across multiple banks —
The plan also offers bankers an option in the fund if they wish to do such. It was in early June that the bankers’ panel, chaired by Mehta was formed to look into the the feasibility of an AMC or asset reconstruction company to address the stressed asset issue.
About the plan
In case these high-value assets are to be sold, the price discovery would be through open auction by the lead bank and the idea is that AMC/AIF would become a market-maker capable of ensuring fair price and cash recovery. The security receipts could be redeemed within 60 days. The AMC/AIF could steer the turnaround themselves or engage external parties.
For mid-sized bad assets ( between Rs 50 crore and Rs 500 crore) — which are of similar aggregate size as of the large ones — there will be a purely banks-led resolution approach under which they would enter into an inter-creditor agreement to authorise the lead bank to implement it in 180 days.
The lead bank will then prepare a plan and may involve turnaround specialists and industry experts in its implementation. If 66% of the lenders approve a plan, it could be worked out, akin to a similar threshold for insolvency proceedings under the Insolvency and Bankrutpcy Code. In case the lead bank fails to complete the resolution process in 180 days, the asset would be referred to the National Company Law Tribunal for insolvency proceedings.