New Delhi: Public sector banks, including State Bank of India (SBI) and Punjab National Banks (PNB), are in talks with asset management and investment funds Brookfield, KKR, BlackRock and Edelweiss to set up country’s first asset management company (AMC) that would turn around stressed assets under the new resolution scheme Sashakt.
The Sashakt plan aims to resolve the problem of non-performing assets through a market-led approach. Under it, bankers are not seeking any dispensation or forbearance from the Reserve Bank of India (RBI) and plan to deal with bad loans of over Rs 500 crore through an AMC structure.
According to a source in the finance ministry, one of the proposed AMC and alternative investment fund (AIF), possibly under the aegis of SBI, would be registered within a month, possibly in September itself. The board of the bank is expected to approve AMC soon. “This venture could also rope in private sector players such as Canadian asset manager Brookfield and others as equity participants later. Talks are still on to decide the exact structure of the proposed AMC,” said the source.
The AMC model for resolution of large bad debt would not be restricted to just one entity but other banks like PNB and Bank of Baroda (BoB) are also exploring similar ventures where effort is being made to also rope in domestic financial institutions (DFIs) and asset reconstruction companies (ARCs) into Sashakt AMCs. Investment funds are likely to be brought in as equity partners under the AMC/AIF model for their interest in asset management. AMCs would also appoint industry experts and turnaround specialists to help resolve the stressed asset.
A senior official of a PSB said they were also talking to power sector financial institutions, like Power Finance Corporation (PFC) and Rural Electrification Corporation (REC), which are looking to set up their own sector-specific AMCs.
In fact, REC has proposed its own AMC model where stressed asset would be nursed under a warehousing scheme before being auctioned.
“The limited success of the ARC model should be studied and problems rectified before the government sanctions AMCs of PSBs in bulk. The aim should not only be to get maximum value from bad accounts but also nurse some of them to health so that they start contributing to the economy,” said an industry analyst.
The AMC model is being looked at with lots of hope by lenders as their exposure to toxic asset of over Rs 500 crore is around Rs 3.6 lakh crore. Of this, PSBs account for Rs 3.1 lakh crore.
As on March 31, 2018, NPA across listed banks stood at over Rs 10 lakh crore. RBI, in its financial stability report, released in June stated that toxic assets remained a concern and the gross NPA ratio of scheduled commercial banks could rise to 12.2 per cent by March 2019 from 11.6 per cent in March 2018.
Though banks are pursuing a few large NPA accounts in NCLT, it has favoured asset rehabilitation and reconstruction in other cases to protect its value and maximise returns from accounts in default. The scheme would also ensure job protection and creation.
The government has accepted the Sashakt scheme that has been given fresh direction by a high-level committee on restructuring stressed assets and creating more value for PSBs, headed by Sunil Mehta, PNB non-executive chairman.
The committee has favoured a transparent market-based solution for resolution with a five-pronged strategy. It has suggested an SME resolution approach, bank-led resolution approach, AMC/AIF led resolution approach, NCLT/IBC approach, and asset-trading platform for smaller assets with exposure up to Rs 50 crore, mid-size assets between Rs 50 crore and Rs 500 crore, and large assets with exposure of Rs 500 crore and more, which have a potential for turnaround.
The resolution route is also applicable to larger assets already before NCLT and any other asset whose resolution is still pending....