A five pronged strategy formulated by a committee of bankers led by scam-hit Punjab National Bank's chief Sunil Mehta has been accepted by Interim Finance minister Piyush Goyal.
The strategy code-named Sashakt is aimed at tackling the case of rising NPAs in the country. The Sashakt project outlines five categories for banks to resolve dues. These were namely SME resolution approach, bank-led resolution approach, an AMC/AIF led resolution approach, NCLT/IBC approach, and an asset-trading platform.
Besides Mehta, the committee includes Rajnish Kumar, SBI's Chairman, and PS Jayakumar, the MD of Bank of Baroda. The committee suggested formation of an asset trading platform for both performing and non-performing assets.
Within the SME Resolution Approach (SRA), state-run banks would use a template to recover loans up to Rs 50 crore. The template would be steered by an internal committee and resolution was expected to be completed in a time bound manner within 90 days. The Bank Led Resolution Approach (BLRA) that dealt with loans of Rs 50 - 500 crore, would involve financial institutions entering an inter-creditor agreement to authorise the lead bank to implement resolution plans in 180 days. This lead bank would 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 the Bankruptcy Code.
The Sashakt model has mooted for building an Asset Management Company (AMC) for resolution. Besides, State banks were also expected to set up alternate investment funds (AIF) which could help raise money and back the AMC. "An independent AMC would be setup, and AIF would raise funds from institutional investors," explained Goyal adding that the government would have no role in the initiative.
"AMC/AIF will become a market maker and ensure healthy competition, fair price and cash recovery," he conceded saying that there was no proposal to set up a bad bank.
But there are chances of having more than one AMC, he said. He remained hopeful that the program could get banks to focus on credit uptake and better their abilities in lending to good borrowers.
Goyal was quoted saying in a Mint report, "Small equity required. No capital required from the government. Investors can come and invest. It’s an open process."
In another report he was hopeful of the Sashakt model preventing job losses from foreclosures and thereby providing fresh employment avenues 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.
Rajnish Kumar conceded SBI's willingness to participate in the program, and added, "each bank could take its own decision, we [SBI]are ready to take the initiative."
NPAs at Indian state run banks running into 7.77 lakh crores (by end of December 2017) has been a cause of concern for the government as well as banks. Nearly half or 3.1 lakh crores of this amount is linked to 200 accounts with over Rs 500 crores each in pending recoveries.
A set of protocols prior to handing cases to IBC courts is expected to further strengthen the bank's recoveries.