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Fixing NPAs: Foreign participation expected for largest assets

The proposed inter-creditors’ agreement will make the decision making process much better, Rajnish Kumar, Chairman, SBI, tells ET Now.Edited excerpts: Your take on the five-pronged strategy to solve NPA problem of PSU banks. Do you think this is really a better way to solve the issue rather than just setting up an AMC? There are different categories of accounts. What the committee has tried to do is the classification of accounts according to size. Up to Rs 50 crore, the accounts are in SME segment and this is one segment where even referring the accounts immediately to NCLT may not be useful. So, a template has been created, subject to certain parameters. The plan can be worked out. The whole approach of the committee is that if a resolution plan can be worked out in 180 days, a serious attempt should be made and if it does not work out, then of course there is no other option but to refer it to NCLT. That is also the RBI approach.It also speaks about 180 days' timeframe for working out and implementing resolution plans. Otherwise, NCLT remains the only course. Are the bankers then seeking any elaxation from RBI to resolve assets or are you okay with this five-pronged strategy and don’t think that any further changes need to be made? There is no change. Whatever the recommendations are, we are in working in accordance with the regulatory framework. Where will the funds come from and how will multiple AMCs be regulated then? AMCs or funds are regulated by SEBI. Currently, if you look at the presentation that was made to the media yesterday, there are three problems. One is the problem that comes from multiple banking. There is a huge number of banks and consensus or decision making is very difficult. So, the problem of fragmented decision making is one. May a times, different banks are selling asset to different ARCs. So even at ARC level there is no consolidation. The first fundamental difference is that the suggested approach is a coordinated approach where banks act in coordination with each other and get the debt consolidated under one ARC. Second is that the capital available with existing ARCs and the assets under management is about Rs 88,000 crore. This is too low in relation to the size of the NPAs in the banking system.Third fact is that most of the time it is 15% cash and 85% SRs are issued and redemption rate of SRs is very low. In this arrangement, what is proposed is that payment is made within 60 days maximum and the structure is that the ARC which bids,will be supported by an alternate investment fund. In turn, all the alternate investment funds have their AMCs and the structure is AMC, AIF, ARC. Under AMC and IBF, do you see interest coming in from foreign participants and PE players as well? Yes very much. Foreign participation is very much anticipated but the domestic institutions, banks as well as foreign investors will participate. Out of five approaches, this is one approach which is for the largest assets, Rs 500 crore and above. So there is a considerable interest in the stressed assets management and resolution amongst the investors. The committee are very hopeful that there will be interest in the type of arrangement which is proposed. Part of the market also believes that this is a rather hurriedly proposed hopeful model where source of funds and cognisance of reality seem to be missing. How would you refute this? That is okay. Whenever you try to do something new, some kind of scepticism comes in. Unless something happens and things progress, it is natural to have such kind of reaction but it is not hurried. It is very well thought of. The fact that the entire report has been put up in 20 days is why people are calling it hurried. If we had prepared this report in three months and it would have been considered a well thought report. So, there I have my own reservation. I do not agree that it is a hurriedly prepared report. That is not a valid criticism. There has not been any evidence in the recent past to showcase any successful big-ticket resolution through old mechanisms like CDR or JLR. No that is alright because all those mechanisms did not work. But in this mechanism, there is no possibility of something not working. Suppose this AMC, AIF, ARC structure does not work, then what happens or what do you do? The asset will lend in NCLT, that in any case is the option. The committee believes that if an asset can be resolved and where lenders believe that the AMC, AIF, ARC structure will deliver better result, then straight away referring the account to NCLT. The main thing is about that fragmented decision making.Consolidation of debt is required and the coordination amongst the banks after 12th February circular is needed. There is no forum with any regulatory backing whatsoever amongst the lenders, but we cannot work in vacuum if we have more than one bank. So the inter creditors agreement which is proposed where the lenders examine it, their boards approved it, will make the decision making process much better. Otherwise, most of the time, building consensus amongst the lenders is proving to be difficult. Do you think banks would need further capital infusion as well from the government? Again this issue was deliberated by the committee and there is no additional capital requirement because of the structure which has been proposed. Apart from whatever provisioning requirement will be there, which are like regulatory requirements, what it does is that the assets which have been identified that will also be… it is not that each and every asset you are going to put through this mechanism will be resolved in a day or two. It is a three to six months process when the assets will actually start getting resolved through this process. The capital requirement is as per the aging requirement that will kick in but the day the asset is sold, then the provision for the loss will have to be made upfront. To that extent, there may be some requirement for upfronting the provisions but because the assets go out of your books, the capital will be freed up also.

Source: ET

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