Most banks involved in ICA may accept Mehta panel norms by next week

Under ICA, the lead bank is authorized to implement a resolution plan in a time-bound manner

Shayan Ghosh
Updated23 Aug 2018
Sunil Mehta, non-executive chairman of Punjab National Bank.
Sunil Mehta, non-executive chairman of Punjab National Bank.

Mumbai: The Sunil Mehta Committee working to quicken bad loan resolution will circulate guidelines for banks participating in inter-creditor agreements (ICA), a member of the panel said on Tuesday. The norms are likely to accepted by a majority of lenders by next week.

“We are coming out with the operating guidelines. We have already drafted it and in a couple of days’ time, we will be circulating to banks. Once 66% of banks agree to this, the operating guidelines will become enforceable,” said Venkat Nageswar, deputy managing director, global markets, State Bank of India (SBI), who is also a member of the committee.

ICA is part of Project Sashakt, a five-pronged strategy to resolve bad loans proposed by a panel led by Punjab National Bank non-executive chairman Sunil Mehta. Under ICA, the lead bank is authorized to implement a resolution plan in a time-bound manner. Banks have pinned hopes on ICA to resolve a large chunk of the 10 trillion of bad loans.

The norms, Nageswar said, will specify timelines.

“If you have to do a resolution plan, we need to do the valuation, we need to call the investment banker who can give the resolution plan and voting mechanism,” he said on the sidelines of Ficci’s banking conclave Fibac.

The guidelines will be for the lead lender and for the steering panel to be formed by the Indian Banks’ Association (IBA). Once these two things are in place, ICA will be operational. According to Nageswar, 32 banks and financial institutions, including 20 public-sector banks, have signed ICA. He added that one public sector bank (PSB) is expected to sign it some time this week; six private-sector banks have signed; two development finance institutions (DFIs) have signed, as has one foreign bank.

“There are a couple of private sector banks that are likely to sign and dialogues are going on between lawyers of ICA and lawyers of these banks. Hopefully, they will be signing in the next few days. What we have seen is banks that have around 85% of exposure (in stressed assets) have already signed and it is only people with minimum exposure who are outside ICA,” said Nageswar.

Foreign banks have little exposure to stressed assets and these banks can therefore join in individual cases rather than signing ICA, he added.

He said the Mehta panel is looking at floating an asset management company (AMC) and an alternative investment fund (AIF) and is in advanced discussions with both domestic and international funds who have shown keen interest. “So, we are working on the structure of AMC and again, it might take another 10-15 days to incorporate or come out with the AMC and kick-start the process,” he said.

On banks investing in AIFs, he said the stake of public sector banks will not be more than 30% in a fund. “We are looking at one or multiple AMCs and there will be sector-specific funds. Depending on the sector and the number of assets that are there, each fund can be in the range of 2,000 crore to around 8,000 crore or up to 10,000 crore,” Nageswar said. The first step, he said, is incorporating the AMC. “Any fund must have minimum of four assets as a fund can’t take over 25% exposure (in one asset). So if I’m going to have four large assets in a particular sector, we can create a fund,” he said.

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