Acting Finance Minister Piyush Goyal on Monday said that the government has accepted Sunil Mehta-panel's suggestion of a five-pronged strategy to deal with rising non-performing assets. The panel, which was set up to study the feasibility of an ARC/AMC for faster resolution of bad loans, has suggested a five-pronged strategy that includes -- SME resolution approach, bank-led resolution approach, AMC/AIF led resolution approach, NCLT/IBC approach, and asset-trading platform.
Based on the suggestion, the government will soon set up independent asset management companies and steering committees for faster resolution of bad loans in the banking system.
Piyush Goyal said that the panel has recommended an asset management company/alternative investment fund (AIF)-led resolution approach to deal with NPA cases of more than Rs 500 crore. Currently, there are about 200 such accounts - each of which owes more than Rs 500 crore to banks. The total exposure of these accounts is about Rs 3 .1 lakh crore.
Under AIF-led resolution approach, independent asset management companies would be set up. Alternative Investment Fund would raise funds from institutional investors. "The government will not intervene in the resolution process which would be entirely led by banks," the Minister said.
The panel has also suggested a plan -- SME Resolution Approach (SRA)-- for dealing with bad loans up to Rs 50 crore. Under the SRA, loans up to Rs 50 crore would be dealt using a template approach supported by a steering committee. The panel has recommended that the resolution should be non-discretionary and completed in a time bound manner within 90 days.
For loans between Rs 50 and Rs 500 crore, the Mehta committee has proposed Bank-Led Resolution Approach (BLRA). Under this approach, financial institutions will enter into 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 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 go to NCLT.
The Finance Minister said the recommendations of the committee are compliant with extant regulations and aim operational turnaround to retain value of assets created for national benefit. He further said that the recommendations also aim to prevent job losses from foreclosures and create additional employment by reviving businesses.
The committee has also suggested an asset trading platform for both performing and non-performing assets. However, it did not recommend setting up a 'bad bank' to deal with the mounting NPAs in state-own banks, Goyal said.
Till December 2017, the gross NPAs of state-run banks stood at Rs 7.77 lakh crore and the total bad loans of all banks, including private ones, were a whopping Rs 8.99 lakh crore. The recent Financial Stability Report of the Reserve Bank had said gross NPAs may rise to 12.2 per cent by March 2019 from 11.6 per cent in March 2018.
(With inputs from PTI)