The Sunil Mehta Committee’s recommendation for floating an independent asset management company (AMC) and an alternative investment fund (AIF) to help banks resolve their big-ticket stressed assets is unlikely to get off the drawing board due to lack of consensus among lenders.
The issues that have bedevilled the formation of the AMC include those related to price discovery and discount at which stressed assets can be sold by banks to the company.
Heavy provisioning
Further, due to heavy provisioning that banks, especially in the public sector, made towards bad loans in the last two-and-a-half years, they are too constrained on the capital front to make commitments to the AIF.
Moreover, bankers say the Reserve Bank of India is unwilling to relax the 180-day time limit for implementing a resolution plan for stressed assets even if the assets are sold to an AMC. So, this acts as a dampener.
The Sunil Mehta Committee, in a report submitted in July to the then finance minister Piyush Goyal, had pitched for an AMC/AIF-led resolution approach for stressed loans above ₹500 crore.
The committee was formed in June under the Chairmanship of Mehta, non-executive chairman of Punjab National Bank, to examine the setting up of an Asset Reconstruction Company (ARC) and/or AMC for faster resolution of stressed assets involving multiple public sector banks.
A senior public sector bank official said though the AMC/AIF proposal was worked on in earnest, it may not take off “as there are many stakeholders involved, including companies such as Rural Electrification Corporation, and Power Finance Corporation, which are major players in the power sector”.
“This (AMC) was mainly for the power sector. So, major players coming to a concurrence was a difficult issue.”
Referring to the experience of initiation of the sale process for three-four power projects in the last few months, another banker observed that a majority of the consortium banks had approved it, but two-three banks were yet to do so.
“So, if consensus cannot be built in these kind of clean transactions among banks, then doing the same with an AMC would be a tall order. It is very difficult to bring everybody together.
“Each person has a different thought process. And added to that is the fear that tomorrow somebody may question us…If this is the position, then how can an AIF-ARC make headway? It will need 100 per cent concurrence. That is not happening,” explained the banker.
While the chances of forming the ARC/AIF are diminishing, the public sector bank official observed that the Inter-Creditor Agreement (ICA) signed among banks may be a good tool for resolution, going forward.
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