Govt accepts 5-point plan to resolve NPAs, rules out bad bank

The government on Monday agreed to a five-pronged strategy to resolve toxic loans, with the larger ones among them going to an asset management company (AMC) or an alternative investment fund (AIF).

Finance minister Piyush Goyal, who accepted the report by a committee of bankers set up in this regard, told reporters that the strategy, called Project Sashakt, will help retain the value of the asset through operational turnaround. The finance ministry had set up the committee, led by Punjab National Bank chairman Sunil Mehta, in June.

There is no proposal to create a bad bank, and Project Sashakt does not require any regulatory forbearance, Goyal said.

Project Sashakt outlines the resolution of bad loans depending on their size. Bad loans of up to Rs. 50 crore will be managed by a focused vertical to be set up at the bank level itself, which will ensure the loan is resolved within 90 days. For bad loans of Rs. 50-500 crore, banks will enter into an inter-creditor agreement, authorizing the lead bank to implement a resolution plan within 180 days, which includes appointing turnaround specialists. If the lead bank does not complete the process in time, the asset would be referred to the National Company Law Tribunal (NCLT).

For loans above Rs. 500 crore, the committee has recommended setting up an independent AMC supported by institutional funding in stressed assets or an AIF. The idea is to help consolidate stressed assets under the AMC model for better and faster decision making.

“There can be more than one AMC. It will be completely market-driven. Small equity required. No capital required from the government. Investors can come and invest. It’s an open process.” Goyal said.

Bigger loans which cannot be resolved through any of the above methods will be transferred to the NCLT for resolution under the Insolvency &

Bankruptcy Code (IBC). The committee also recommended an asset trading platform for both performing and non-performing assets.

“It should create a more vibrant market and each sector requires specific skills. For instance, institutional investors can decide their sector of interest,” Mehta said.

Besides Mehta, the committee included State Bank of India chairman Rajnish Kumar, Bank of Baroda managing director and chief executive officer P.S. Jayakumar and SBI deputy managing director C. Venkat Nageswar.

“Having an AMC will consolidate the bad loans of all lenders at one place,” a banker told Mint. “However, what is crucial is where the AIF is going to get funding from to invest in these stressed assets,” he said on condition of anonymity.