India has not lived up to the high expectations and standards required of the banking system and the current “trying times” had finally forced a recognition of the non-performing assets (NPA), or bad loans, situation and the need for a move to resolve the problem, acting Finance Minister Piyush Goyal said on Tuesday.
Addressing the State Bank of India (SBI) Banking and Economics conclave here, Goyal said that recommendations of the panel headed by Punjab National Bank Chairman Sunil Mehta for creating independent asset management companies (AMCs) and steering committees for faster resolution of NPAs, which was accepted by the government on Monday, is a “win-win situation” for all stakeholders concerned.
“Banking will never be the same again…it has moved from one end of the spectrum to another, and not necessarily in glorious fashion,” he said.
“Collectively we have not lived up to the high expectations required of banking. Have we as a banking system remained abreast with new technologies and maintained high standards of monitoring and accountability?”
The Minister cited the example of the Core Banking Solution technology that had been adopted in a “half undone” manner.
“The (NPA) cases beyond redemption should go for liquidation to the NCLT (National Company Law Tribunal) under the IBC (Insolvency and Bankruptcy Code),” he said.
“The other cases should be resolved by a transparent and accountable mechanism overseen by an independent third party steering commitee.”
The Sunil Mehta panel has recommended the creation of an AMC under the framework of an alternative investment fund (AIF) to deal with NPA cases of more than Rs 500 crore.
There are about 200 such accounts, each owing more than Rs 500 crore to banks, with a total exposure of about Rs 3.1 lakh crore.
Under this approach, independent AMCs would be set up, while AIF would raise funds from institutional investors. Financial institutions will enter into an inter-creditor agreement to authorise the lead bank to implement a resolution plan in 180 days.
The lead bank would then prepare a resolution plan including empanelling specialitsts and industry experts for operational turnaround of the asset.
The committee has also suggested an asset trading platform for both performing and non-performing assets.
Besides, it has also suggested a plan for dealing with bad loans up to Rs 50 crore, which would be dealt with under the SME Resolution Approach (SRA) using a template supported by a steering committee. The resolution should be non-discretionary and completed in a time-bound manner within 90 days.