Mehta Panel Report on NPAs

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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: xaam.in

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