Govt unveils plan on bad loans that protects jobs

New Delhi: To deal with non-performing assets (NPAs) of banks, the government on Tuesday unveiled its “SASHAKT” programme which proposes to set up independent asset management companies (AMC) and steering committees for faster resolution of bad loans.

The AMC will bid for stressed assets with loans over Rs 500 crore, including assets taken by National Company Law Tribunal (NCLT) for resolution.

Finance minister Piyush Goyal said that the plan focuses on turning around assets in a manner that will not lead to job losses.  

“The government will not intervene in the resolution process which would be entirely led by banks,” Mr Goyal said.

There are about 200 accounts, each of which owes more than Rs 500 crores to banks. Their total exposure is about Rs 3.1 lakh crores. The gross NPAs of public sector banks stood at Rs 7.77 lakh crores at end-December 2017. Total NPAs of all banks, including private ones, were Rs 8.99 lakh crores.

In a report submitted by a committee on Resolution of Stressed Assets, different appro-aches have been outlined for stressed loans upto Rs 50 crores, between Rs 50 to Rs 500 crores and over Rs 500 crores.

For SME sector with loans upto Rs 50 crores, bank officials will be given 90 days for a resolution. The bank officials will look at how to turnaround the company and their capital requirement.

Since, resolution of these assets will be mostly under a single bank control, the committee has recommended an overall approach which would be customised at the individual bank level. The sector has Rs 2.1 lakh crores exposure.

For loans between Rs 50 to Rs 500 crores, 180 days will be given for resolution under bank-led resolution approach (BLRA) mechanism.  Under the plan, a lead bank will be appointed and a consortium of banks will sign an inter-creditor agreement to authorise the lead bank to implement a resolution plan in 180 days. The lead bank would then prepare a resolution plan including empanelling turnaround specialists and experts for operational the turnaround of the asset. The resolution plan should be approved by lenders holding at least 66 per cent debt.

Once the resolution plan is approved, the lead bank would be responsible to execute the plan. In case the lead bank is unable to complete the resolution process within 180 days, the asset would move to NCLT.  Bank exposure to these category of loans is Rs 3.1 lakh crores.

For loans above Rs 500 crores, an independent AMC would be set-up to bid for stressed assets through auction. All investors will be eligible to bid for these stressed assets so that the process is competitive and transparent.

AMC will be set up under alternative investment fund (AIF) framework to raise funds from institutional investors and banks will have an option to invest if they wish to participate. The AMC/AIF will conduct operational turnaround of the asset by itself or by engaging an external party.

Mr Goyal said consolidation of stressed assets under AMC is for better and faster decision making. This will free up management enabling them to focus on credit growth. There will be zero capital from the government in the proposed structure.