The union Finance ministry and banks must work with alacrity to form a structure of asset reconstruction companies (ARC), asset management companies (AMC) and alternate investments funds (AIF) to attract investors for the takeover and resolution of stressed loans. Else, the process, which has been talked about since 2018, runs risks of losing credibility, according to Sunil Mehta, chairman, Yes Bank.
Mehta, who was head of the Sashakt panel which crafted the road map in 2018, said one agency should be chosen to anchor the work (formation, monitoring etc) and held accountable for activity. The panel had dealt with issues and structure for such arrangement in detail and â€œthere is no need to reinvent wheelâ€.
Banking industry lobby group Indian Banksâ€™ Association (IBA) had earlier held discussions with finance ministry about such structure. However, it is not clear about who will administer the process, senior bankers said.
The clarity on process and rules for transferring assets from bank books and the valuation is necessary. Banks have made over 70 per cent provision for assets (mostly large) which could be moved to ARC.
Also, inter-creditor agreement (ICA) framework is already in place. At a start ARC is expected to have capital base of Rs 100 crore, bankers added. The initial capital pegged at Rs 10,000 crore for the ARC will support the buying of bad loans in excess of Rs 1,00,000 crore.
Sashakt panel had advised to set up an independent and professionally managed Asset Management Company (AMC). The AMC will set up AIFs and solicit commitments from banks, as well as domestic and international investors.
The financial institutions should enter into an ICA authorising the lead bank to run the resolution process. The lead bank would launch an open auction to invite bids for the sale of the stressed asset from the interested ARCs/ AMCs/ other investors. Bids will be invited on a 100 per cent cash basis or 15 per cent cash, and 85 per cent Securities Receipts (SRs) redeemable within 60 days.
The AMC will partner with an ARC and conduct an independent due diligence on the asset for estimating the value of sustainable debt and participates in the open auction along with ARCs and other investors, the panel had said.