Mains Paper 3: Economy | Mobilization of resources
From UPSC perspective, the following things are important:
Prelims level: Scheme for Sustainable Structuring of Stressed Assets- Project Sashakt
Mains level: NPA problem and solution
The government agreed to a five-pronged strategy to resolve toxic loans, with the larger ones among them going to an asset management company (AMC) or an alternative investment fund (AIF).
I. Project Sashakt to resolve NPA crisis
- Finance minister accepted the report by a committee of bankers set up in this regard, that the strategy, called Project Sashakt.
- It will help retain the value of the asset through an operational turnaround.
II. No Bad Banks
- There is no proposal to create a bad bank, and Project Sashakt does not require any regulatory forbearance.
- A bad bank is a new company created to buy poorly-performing assets from another bank.
III. Project Sashakt outlines the resolution of bad loans depending on their size
- Bad loans of up to ₹50 crore will be managed by a focused vertical to be set up at the bank level itself, which will ensure the loan is resolved within 90 days.
- For bad loans of ₹50-500 crore, banks will enter into an inter-creditor agreement, authorizing the lead bank to implement a resolution plan within 180 days, which includes appointing turnaround specialists. If the lead bank does not complete the process in time, the asset would be referred to National Company Law Tribunal (NCLT).
- For loans above ₹500 crore, the committee has recommended setting up an independent AMC supported by institutional funding in stressed assets or an AIF.
IV. AMCs to consolidate Stressed Assets
- The idea is to help consolidate stressed assets under the AMC model for better and faster decision making.
- There can be more than one AMC, completely market-driven with small equity required.
- No capital is required from the government. Investors can come and invest. It would be an open process.
V. New role for NCLT
- Bigger loans which cannot be resolved through any of the above methods will be transferred to the NCLT for resolution under the Insolvency & Bankruptcy Code (IBC)
- The committee also recommended an asset trading platform for both performing and non-performing assets.