Mumbai: Multiple asset management companies, asset reconstruction companies and alternative investment funds can bid for stressed assets under Project Sashakt, said Punjab National Bank chairman Sunil Mehta, who led a committee which came out with a report to help fix Indian banks’ bad loan problem. Mehta also said that the ultimate objective is to create a vibrant market which includes online trading of these stressed assets. Edited excerpts from an interview:
Who will have ownership of the stressed asset?
The moment banks sell it to asset reconstruction companies and these ARCs will in turn transfer the ownership of asset to the Alternate Investment Fund (AIF). The AIF then becomes the effective owner because the intent is that the promoter if at all he is there becomes the minority. His control goes below 24%. The new owner which is the ARC and AIF are the ones that controls the asset and hence their stake will be 76% and above. No one, even the promoter, should have blocking rights.
How will the ARC repay these non-convertible debentures (NCD) once they come up for redemption?
Once the asset moves to the ARC, it gets restructured at the ARC level. Then it goes into the AMC – AIF, then the AIF subscribes and buys it and then takes the asset over and runs the asset. The AIF subscribes to those NCDs which were issued when the asset was under ARC. The proceeds of that the ARC goes to repay the bank. ARC becomes cash-neutral because the AMC has bought it over and banks get paid out within 60 days. The asset could issue optionally convertible debentures or debt rated debentures. Some upside will come over a period of time.
Will stressed assets in the power sector be the main focus of the AMC-AIF?
We have taken the entire stressed portfolio. We have not done a full analysis of what those 200 accounts constitute. Even in those 200 accounts with exposure of ₹ 500 crore and above, power will be a fairly big component. Power, textile, industrial, roads will be the principal sectors.
Can an Edelweiss or KKR set up an AMC-AIF structure and participate in the bidding?
State Bank of India (SBI) has volunteered to participate because somebody needs to put in that seed capital to get it going and I’m quite sure P.S. Jaykumar (chief executive officer) of Bank of Baroda will also participate. Other banks will take their own calls. Anybody else who wants to initiate AMC-AIF structure are more than welcome. There are 23 ARCs. The market is speculating why should there be another ARC. If one of the ARCs where banks have ownership like ARCIL or SIDBI run ARC can be used, then why not? The recommendations do not suggest one AMC or one AIF. It is a recommendation that a market be created that allows AMC to come into play. Like a typical AMC you can have different funds. Ultimate objective is this is too big a market for one large AMC-AIF to be there. For instance, earlier, a mutual fund was a Unit 64. Then the mutual fund industry evolved and many AMCs took birth and now it became a vibrant market. Now we hope that over a period of time, it becomes a vibrant market and stressed assets accumulation also starts coming down.
How does the AMC-AIF model align with Reserve Bank of India’s February 12 circular?
The resolution plan should be implemented within 180 days. Even the bank-led resolutions also suggest 180 days. If it cannot be sorted out within this deadline, then it goes to National Company Law Tribunal. (NCLT). A large number of assets fall between ₹ 500-2000 crore where the AMC model can be implemented.
How will the online asset trading platform work?
We have to figure out under which regulator the asset trading platform will come. We looked at what was being done in other markets.
There are standardised agreements on this. If you have collateral as real estate, then to move assets there are stamp duty and registration issues. We still have to get all of that sorted out. If there are banks starved for capital and they want to offload their asset book, they don’t have to do it on a bilateral basis, they can do it on a vibrant market. Success of such a platform in other markets is very high.
What is the response from foreign investors? Or will banks end up investing in these assets?
The interest from investors is encouraging. We had to get the model out and approved, now the discussion will move from interest to actualization. They want to look at the quality of the team. This allows them a better platform.
The recommendation or the intent of the committee is that the structure should be attractive enough to other domestic and global investors.
How do you ensure that regulatory challenges are overcome in this process, say in the case of power purchase agreements?
The only ask from the finance minister is that we need a point person in the government who could be a point person for this particular market that we are creating for all policy issues. They are going to assign a point person for resolution of issues that impact some of the assets, whether the centre or state because that will ensure faster resolution.