Sunil Mehta Committee (Stressed Assets)

Sunil Mehta Committee
  • It was set up to look into the faster resolution of stressed assets
  • It has recommended the creation of an asset management company for the resolution of stressed loans worth more than Rs.500 crore.
  • The committee had also laid out a plan to resolve SME loans within 90 days.
Five-pronged resolution
  • The report comprises a bank-led resolution process and a five-pronged strategy to resolve stressed assets called Project Sashakt.
  • The idea behind Project Sashakt is to ensure the operational turnaround of the banks and stressed companies so that the asset value is retained.
  • The five-pronged resolution route: (Make Diagram of this)
    • outlining an SME resolution approach,
    • bank-led resolution approach,
    • AMC/AIF led resolution approach,
    • NCLT/IBC approach, and
    • asset-trading platform
  • This 5 pronged approach will be applicable to smaller assets with exposure up to Rs.50 crore, mid-size assets between Rs.50 crore and Rs.500 crore, and large assets with exposure of Rs.500 crore and more which have a potential for turnaround.
  • The resolution route is also applicable to larger assets already before the National Company Law Tribunal (NCLT) and any other asset whose resolution is still pending.
  • The process will cover both performing and non-performing assets.
  • For the resolution of SMEs, the committee suggested the setting up of a steering committee by banks for formulating and validating the schemes, with a provision for additional funds.
  • The resolution should be complete within 90 days. The committee suggested that the resolution of these assets be under a single bank’s control, with the bank having the liberty to customise it.
  • For loans between Rs.50 crore and Rs.500 crore, the committee called for a bank-led resolution approach, with the resolution being achieved in 180 days.
  • The resolution plan has to be approved by lenders holding at least 66 per cent of the debt.
  • The independent steering committee appointed by the Indian Banks Association (IBA) has to validate the process within 30 days.
  • In this category, the key challenge would be to arrive at a consensus, as the exposure is held by multiple banks/lenders.
  • In light of this, the committee recommended that such lenders 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 turnaround specialists and other industry experts for operational turnaround of the asset.
  • In addition, the committee had recommended the setting up of a robust monitoring and review mechanism to track resolution with clear escalation metrics for breached timelines.
  • For loans above Rs.500 crore, an independent asset management company (AMC) will be set up.
  • The committee also said an 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 NCLT.
  • The lead bank can discover price discovery through the open auction route. Security receipts have to be redeemed within 60 days.
  • The recommendations are fully compliant with RBI regulations and there is no proposal to create a bad bank.
  • The resolution process suggested by the committee will help bring in credible long-term external capital to limit the burden on the domestic banking sector while ensuring robust governance and credit architecture to prevent a similar build-up of non-performing loans in the future.

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