Bankers to revive bad bank concept
2 min read 08 May 2020, 12:16 AM ISTThe ARC will be set up with 15% investment by the governmentThe assets will be managed by an asset management company (AMC) run by banks and the Alternate Investment Funds (AIF) will make available a secondary market for these security receipts
PremiumMUMBAI : Indian Banks Association is reconsidering the option of bringing back the bad bank concept to resolve the existing legacy of stressed assets, according to two people familiar with the matter. Banks are exploring whether to transfer loans under restructuring or those undergoing resolution in the National Company Law tribunal (NCLT) to the bad bank.
According to the one of the bankers cited earlier, the bad bank concept will be modelled around the Project Sashakt model which was proposed by a panel led by former Punjab National bank chairman Sunil Mehta two years ago. According to the model, the bad loans will be transferred to an asset reconstruction company which will issue security receipts.
The ARC will be set up with 15% investment by the government. The assets will be managed by an asset management company (AMC) run by banks and the Alternate Investment Funds (AIF) will make available a secondary market for these security receipts.
“As of now we are looking at existing legacy cases. Later on could look at accounts impacted by Covid. Resolution is getting delayed due to banks pulling in different directions. IBA is ascertaining the quantum of bad loans and thrashing out other finer details," the first banker added.
Banks are expecting to take atleast 6-9 months to get approval from government, Reserve Bank of India and Securities and Exchange Board of India (SEBI).
The AMC will be managed by independent professionals and nominee directors, who will identity the right assets to buy, the price at which to buy them and also make decision on resolution plans.
The Economic Times first reported on Thursday that banks led by State Bank of India are considering setting up a bad bank like structure to house and revive bad loans.
The idea of forming a 'bad bank' in India was initially floated in January 2017 when the Economic Survey of India suggested setting up a Public Sector Asset Rehabilitation Agency (PARA). RBI, too, came up with a suggestion to form two entities to clean up the bad loan problems ailing PSBs -- PAMC (Private Asset Management Company) and NAMC (National Assets Management Company).
In 2018 the government proposed a five-pronged strategy under Project Sashakt to tackle stress in the banking sector, and had formed a panel led by Mehta, the non-executive chairman of Punjab National Bank (PNB). Under the project, the committee had to float an AMC and an AIF to resolve non-performing assets (NPAs) over ₹ 500 crore.
