By DK Aggarwal
With an aim to resolve the problem of stressed assets of public sector banks, the government recently unveiled another strategy, called 'Project Sashakt'.
Indias PSU banks make up 70 per cent of the total banking industry and the ongoing cleanup exercise, initiated by a former RBI governor, has helped dig out much of the hidden dirt from bank balance sheets, but that isnt enough.
Although the government is considering merger of at least four state-run banks namely, Bank of Baroda, IDBI Bank, Oriental Bank of Commerce and Central Bank of India, as part of a larger consolidation plan, but this will not be sufficient to put PSU banks back on track.
On the flip side, government efforts to clean up bad loans through IBC and NCLT have succeeded to some extent. One may take the examples of Tata Steel-Bhushan Steel deal and Vedanta-Electrosteel deal. Undoubtedly, these deals have created a ray of hope because large corporations with deep pockets came forward to acquire these distressed assets. However, the process is very time consuming and many cases are in still in the pipeline.
The five-pronged “'SASHAKT” strategy is designed to address bad loans and strengthen the credit capacity, credit culture and portfolio of the public sector banks.
Project Sashakt sketches the resolution of bad loans, depending on their size. It includes an SME approach, a bank-led resolution approach, an asset management company (AMC)/ alternate investment fund (AIF)-led approach, an NCLT / IBC-led approach and an asset trading platform approach.
In the asset management company-resolution approach, an independent AMC would be set up by state-run banks for resolution of loans above Rs 500 crore and the AMC will set up alternate investment funds (AIF) to raise money from institutional investors, which will then go back to the asset management company. If the arrow hits the target, it will also create additional jobs by reviving businesses and preventing job losses. Also the AMC/AIF will become a market maker and ensure healthy competition and fair price for the debt-laden companies.
Unfortunately, most of the reforms efforts introduced so far have focused only on the symptoms of Indias banking crises, rather than the sectors underlying structural weaknesses.
As of March 31, 2018, bad loans across listed banks stood at over Rs 10 lakh crore. RBI in its Financial Stability Report released last week sated that NPA could rise further over the coming quarters.
The reform and measures taken by both, the central bank and government in the past several quarters such as asset quality review (AQR), recognition of non-performing loans (NPL), National Company Law Tribunal (NCLT) , Insolvency and Bankruptcy Code of 2016( IBC) have not been up to the expectations.
But the billion dollar question is that will 'Project Sashakt' help tackle the toxic pile and revive the Indian banking system?