Project Sashakat addresses some of practical challenges; promote faster resolution of NPA: Analysts

Project Sashakat endorsed by the Finance Ministry addresses some of the practical challenges and will promote faster resolution of non-performing assets, analysts said.

Independent asset management companies (AMCs) and steering committees would be set up for faster resolution of bad loans in the banking system under the five-pronged strategy endorsed by the Finance Ministry yesterday.

A panel, headed by PNB non-executive chairman Sunil Mehta, recommended an asset management company/alternative investment fund (AIF)-led resolution approach under the five-pronged strategy to deal with NPA cases of more than Rs 500 crore.

It outlines the solution customized to complexity involved, addresses some of the practical challenges seen thus far such as 100 per cent alignment of all lenders' which is now proposed to be dealt through inter creditor arrangement and resolution led by lead bank to be agreed by 66 per cent of lenders' in line with Insolvency and Bankruptcy Code, KPMG said in a statement.

"The recommendations also recognize the fact that we need to attract foreign capital to address this challenge and thus provides framework / structures to attract this capital," Manish Aggarwal (Partner and Head) resolutions & restructuring KPMG said.

According to Anil Gupta, financial sector ratings head at ICRA, the proposed steering committees which will formulate and validate the schemes for resolution of stressed accounts over Rs 50 crore is a positive step, given that such resolution schemes have to be completed within 90 days.

"Many of these borrowers may be facing temporary stress which may be facing cash flow mismatch or liquidity issues and can be resolved with additional/temporary funding. Hence proposal to resolve such cases through a non-discretionary templatised approach for resolution of these accounts transparently is positive," Gupta said.

Resolution of stressed assets is equally important as the recognition of the stressed assets is, he said, adding, with recognition of the large portion of stressed assets and gross NPAs of banking sector reaching 11.7 per cent as on March 31, 2018, the resolution and recovery against these NPAs has to pick up the pace.

"While large accounts are being resolved through the Insolvency and bankruptcy code, the proposed mechanism to resolve the smaller accounts through steering committee process in time bound manner will fasten the resolution process and prevent further losses for the banks and will be in interest of all stakeholders," he said.

The committee has also suggested an asset trading platform for both performing and non-performing assets.

The committee did not recommend setting up a 'bad bank' to deal with the mounting NPAs in state-own banks.

Under the SME Resolution Approach (SRA), loans up to Rs 50 crore would be dealt using a template approach supported by a steering committee.

The panel has recommended that the resolution should be non-discretionary and completed in a time bound manner within 90 days.