What is Project Sashakt and how it will work
Finance Minister Piyush Goyal unveiled 'Project Sashakt', a five-prong strategy to deal with non-performing assets. Sashakt aims to strengthen the credit capacity, credit culture and credit portfolio of public sector banks.
The Centre accepted Project Sashakt in the first week of July 2018,which is a five-pronged strategy to resolve bad loans, with the larger ones going to an asset management company (AMC) or an Alternative investment fund (AIF)
What is Project Sashakt?
Project Sashakt was proposed by a panel led by PNB chairman Sunil Mehta. The Five-Prong Approach is as under:-
1. Outlining SME Resolution approach for Bad loans of up to ₹50 crore - which will be managed at the bank level, with a deadline of 90 days.
2. Bank-led Resolution Approach for bad loans between ₹50-500 crore - Under this approach banks will enter an inter-creditor agreement@, authorizing the lead bank to implement a resolution plan in 180 days, or refer the asset to NCLT.
3. AMC_AIF Resolution Approach for loans above ₹500 crore - The panel recommended an independent AMC, supported by institutional funding through the AIF. The idea is to help consolidate stressed assets.
4. NCLT / IBC Resolution Approach &
5. Asset-Trading Platform Approach.
How will the national AMC work?
According to the committee, banks will have to set up an AMC under which there will be multiple sector-specific AIFs. These funds will invest in the stressed assets bought by existing ARCs, such as ARCIL. The ARCs will use the funds to redeem security receipts issued to banks against the bad loans. Other AMC-AIFs and ARCs will be allowed to bid for these assets, and match the pricing offered by ARCIL or the national AMC. The AMC will be responsible for the operational turnaround of the asset.
Who will own the stressed asset?
The ARC after buying the asset from lenders will transfer ownership to the AIF. The new owner, the AMC-AIF, will hold a stake of at least 76%.
What do investors think about the plan?
While investors are optimistic about the AMC-AIF structure, they believe that pricing will be key to complete the transaction. The Mehta panel suggested that the bidding process follow a market-led approach, inviting bids from AMCs, ARCs and AIFs. Existing players, such as ARCIL and the national AMC, will be allowed to set the floor price for the bad assets, while other players will be asked to either match the price or better it.
What is the money involved?
The total quantum of bad loans worth ₹500 crore or more is estimated at ₹3 trillion. According to SBI chairman Rajnish Kumar, the AMC will require funds of ₹1.2 trillion, assuming a 40% loan recovery. Of this, 60-70% is expected to come from domestic institutions and banks, including SBI, and the remaining 30-35% from foreign investors. The AMC will require funding for six to 24 months, said Kumar.
@ Inter-Creditor Agreement:- Banks and financial institutions, including SBI, PNB and LIC entered on 23rd July 2018, into an overarching inter-creditor agreement (ICA) to fast-track resolution of stressed assets of Rs 50 crore or more which are under consortium lending. The ICA is being signed by 22 public sector banks (including India Post Payments Bank), 19 private sector banks and 32 foreign banks. Besides, 12 major financial intermediaries, like LIC, HUDCO, PFC and REC are also signatories to the pact, according to the agreement.
As many as two dozen lenders signed the inter-creditor agreement (ICA) on Monday the 23rd July 2018, to tackle bad loans between Rs 50-500 crore, adding up to Rs 3.1 lakh crore. Under the agreement, a borrower will be given an opportunity to ‘cure’ the default and a reference for resolution will be made within 30 days of the default, if not repaid.
The agreement, part of the government’s measure to deal with bad loans under Project Sashakt, will be effective by the end of this month. Under the pact each resolution plan will be submitted by the lead lender to an Overseeing Committee. “The lead lender that is the lender with the highest exposure shall be authorized to formulate the resolution plan, which shall be presented to the lenders for their approval."
Under the ICA framework, the decision making will be by way of approval of ‘majority lenders’, those with 66 per cent share in the aggregate exposure. Once a resolution plan is approved by the majority lenders, it will be binding on all the lenders that are a party to the ICA. Each resolution plan that is formulated in terms of the ICA shall be in compliance with the RBI circular and all other applicable laws and guidelines.
While the agreement will primarily focus on the Rs 50-500 crore category, it can also be used for assets within the Rs 500-2,000 crore range. According to the agreement, the lead bank will be paid a fee for its services.
एनपीए की समस्या से निपटने हेतु ‘सशक्त’ योजना की घोषणा