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The government is likely to get a plan for resolving bad assets in small and medium industries (SMEs) ready by October this year. Once the Reserve Bank of India (RBI) approves the Sunil Mehta committee report, the government would hasten the resolution of bad loans in the banking sector. Gross non-performing assets (NPAs) of PSU banks were INR 7.77 lakh crore in December last year.
Basing on the amount of NPAs, the committee proposes five approaches to settle the bad loans.
First: for bad loans up to INR 50 crore mainly involving the SMEs, a steering committee of banks has to prepare a resolution plan, with provision for additional capital and resolution in three months. The committee recommends that a single bank take control and resolve the bad assets issue. The bank can customise the plan.
Second: for loans between INR 50 crore and INR 500 crore, banks need to take the resolution approach and resolve it in 180 days. Lenders holding a minimum of 66 percent of the debts have to approve the plan. The Indian Banks Associations-appointed independent steering committee needs to validate the process within 30 days. Since many banks are involved, it is important to arrive at a consensus.
Third: for loans above INR 500 crore, the authorities will set up an independent asset management company (AMC)
Fourth: the committee said that an alternative investment fund (AIF) would source funds from institutional investors. Banks can opt to invest in this fund.
Fifth: the authorities will set up a platform to trade the assets.
If none of the above options work, the NCLT will hear the case.
Resolving these assets within the deadline is very important because the SME sector – a key engine for economic growth and job creation – has a bad loan exposure of INR 2.1 lakh crore.[/vc_column_text][/vc_column][/vc_row]
