After scrapping the idea of setting up a "bad bank" to deal with mounting Non-Performing Assets (NPAs), the government has accepted a report submitted by the Sunil Mehta Committee.
The committee, which was formed under the chairmanship of Punjab National Bank chairman Sunil Mehta, was given a task to recommend a strategy for resolution of bad loans.
It has recommended a five-pronged strategy under Project 'Sashakt' to deal with Non-performing Assets in the country's banking system. The five-pronged strategy includes SME resolution approach, bank-led resolution approach; AMC/AIF led resolution approach, NCLT/IBC approach, and asset-trading platform.
Public sector Banks (PSBs) will be at the vanguard in constituting an asset management company (AMC) for resolution of loans above Rs. 500 crore. An alternative investment fund will also be created to raise capital and support the asset management company.
The report has recommended a categorisation of loans under Rs. 50 crore, Rs. 50-500 crore and loans above Rs. 500 crore. A five-pronged approach would ensure the time-bound resolution of these bad debts. There are approximately 200 accounts which are indebted more than Rs. 500 crores and the total exposure of the banks to these accounts stands at Rs. 3 .1 lakh crore.
The committee has also proposed an asset trading platform for both performing and non-performing assets. Under the SME Resolution Approach (SRA), loans up to Rs. 50 crore would be dealt with using a template approach. The approach will be headed by a steering committee and resolution will be completed in a timely manner within 90 days.
For the loans between Rs. 50 and Rs. 500 crore, the Mehta committee has proposed a 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 responsibility of the lead bank will be to then prepare a resolution plan including empaneling turnaround specialists, and other industry experts for the operational turnaround of the asset. In case the resolution process is not completed within 180 days, the asset would be resolved through Bankruptcy Code.