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'Sashakt' plan for resolution of stressed assets active for pre-IBC process

In October, the IBA had circulated the final operating guidelines for the bank-led resolution process and had received approval from several lenders

Somesh Jha  |  New Delhi 

Illustration by: Binay Sinha
Illustration by: Binay Sinha

The ‘Sashakt’ plan for resolution of outside the insolvency courts has been made operational after months of delay. The move is expected to help in resolution of over 1,000 assets worth Rs 3 trillion.

Earlier this month, the (IBA) had had asked lenders to “initiate and send resolution proposals under the scheme” according to the terms and conditions of the inter-creditor agreement signed this year. The asked lenders to submit credit rating agencies’ reports, forensic reports, minutes of meetings, and summaries of resolution plans, among others.

In October, the had circulated the final operating guidelines for the bank-led resolution process and had received approval from several lenders.

“This is a positive development, as operationalises the inter-creditor agreement among the 34 signatories. It will provide the necessary impetus for a bank-led resolution mechanism, which is complementary to the existing (IBC) process,” Punjab National Bank Chairman Sunil Mehta, who headed a panel to frame Sashakt, told Business Standard. “This mechanism will help committee of creditors to arrive at a conclusive resolution plan that would preserve the value of the assets.”

The IBA has already identified six professionals to head an overseeing committee to validate the resolution process, a source in the know of the matter said. H R Khan, former deputy governor of Reserve Bank of India; M Damodaran, former chairman of Securities and Exchange Board of India; Janki Ballabh, former chairman of State Bank of India; and M B N Rao, former chairman and managing director of Canara Bank, are among those who may be roped in, the source said.

The Mehta-led committee on resolution of had submitted its report to the government in July, proposing a host of measures to resolve bad loans.

One of the key proposals was a bank-led resolution process for sized assets above Rs 500 million, under consortium lending or multiple banking arrangements. This is supposed to be a time-bound pre-process aimed at resolving bad assets within 180 days.

“Some that have not defaulted but have stressed financial position can go into bank-led resolution process. If you put these before the NCLT, their operations can suffer,” a top banker said, requesting anonymity.

An inter-creditor agreement was signed earlier this year among 34 lenders. Under the pact, each resolution plan is to be submitted by the lead lender (for the borrower account) to the overseeing committee.

The lead lender, with the highest exposure, shall be authorised to formulate the resolution plan, which shall be presented to the lenders for approval. Under the ICA framework, decision-making would be by way of approval of 'majority lenders' — those with 66 per cent shares in aggregate exposure. Once the majority of the lenders approve a plan, it would be binding on all other lenders that are party to the ICA.

An asset management company, known as Sashakt India Asset Management, has also been set up for large loan accounts, with exposure spread across multiple banks and with a potential for turnaround. This would be applicable for loan assets valued above Rs 5 billion.

The IBA recently met domestic and international investors for bringing in the seed fund of Rs 300-500 million for the asset management company. The asset management company would be professionally managed and would attract institutional funding in through alternative investment funds (AIFs). “The challenge has been to find long-term investors for the AIF since a bank can invest up to 10 per cent of the corpus in AIF,” an industry source said.

First Published: Thu, December 27 2018. 22:04 IST
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