Mehta Panel Report on NPAs

Why in news?

The Sunil Mehta Committee submitted a five-point plan on bad loan resolution.

What are the key recommendations?

• The Committee was set up for restructuring stressed assets and creating more value for public sector banks (PSBs).
• It has proposed Project Sashakt to recover banks and stressed companies.

• The five-pronged resolution route outlines five features for bank resolution:

1. an SME resolution approach
2. bank-led resolution approach
3. AMC/AIF led resolution approach
4. NCLT/IBC approach
5. asset-trading platform

• This route will be applicable to the following, which have a potential for turnaround -

1. smaller assets with exposure up to Rs.50 crore
2. mid-size assets between Rs.50 crore and Rs.500 crore
3. large assets with exposure of Rs.500 crore and more

• Large assets - For large assets, an independent asset management company (AMC) will be set up.
• The resolution route is also applicable to larger assets already before the National Company Law Tribunal (NCLT).
• It would also cover any other asset whose resolution is still pending.
• The process will cover both performing and non-performing assets.
• Mid-size assets - The committee called for a bank-led resolution approach for these.
• The resolution plan has to be approved by lenders holding at least 66% of the debt.
• The independent steering committee appointed by the Indian Banks Association (IBA) has to validate the process within 30 days.
• The resolution for this category would be achieved in 180 days.
• In this category, the key challenge would be to arrive at a consensus.
• This is because the exposure is held by multiple banks/lenders.
• SMEs - The committee suggested setting up of a steering committee by banks for SMEs resolution.
• This will formulate and validate the schemes, with a provision for additional funds.
• The resolution should be complete within 90 days.
• It also suggested that the resolution be under a single bank’s control.
• The bank will have the liberty to customise the resolution process.
• AIF - Alternative investment fund (AIF) would raise funds from institutional investors.
• Banks would be given an option to invest in this fund if they wish.
• AIFs can also bid for assets in National Company Law Tribunal (NCLT).
• The lead bank can discover price discovery through the open auction route.

What is the significance?

• The recommendations offer a transparent market-based solution and are fully compliant with RBI regulations.
• It focusses on asset turnaround to ensure job protection and creation.
• The resolution process would help bring in credible long-term external capital.
• This could limit the burden on the domestic banking sector.
• It could also ensure robust governance and credit architecture and prevent any build-up of NPAs in the future.

Source: BusinessLine