Industry Urge for Setting up Stressed Assets Funds for NPA Resolution

NEW DELHI: India's apex industry association, ASSOCHAM has suggested creation of Stressed Assets Funds (SAFs), in order to resolute steps being taken by the government and the Reserve Bank of India to tackle the issue of NPAs as the stressed assets in the banking system. The suggestion also elaborated that with active participation of the cash rich public sector firms to turn non-performing assets (NPAs) into the performing assets.

The chamber would be fully cooperating with the government and the Reserve Bank of India in finding immediate and sustainable resolution of the non-performing assets of the public sector banks, expecting a pragmatic and a practical approach by the lenders and the regulators in the face of the situations on the ground in different sectors of the economy, that remain under stress.

The ASSOCHAM suggested creation of some kind of a Stress Asset Fund (SAF) which can help in revival of the assets under high leverage. “Once these assets are brought back to shape, the pay-backs to the SAF can take place. Different forms of the SAFs can be thought of, including some of which can be neutral to creating a hole in the government finances.

Some of the cash rich public sector companies can be encouraged to participate either in the SAFs or take over some of the assets where the present promoter wants to exit. With the green shoots in several of the sectors, this could even be an opportunity for the government or special purpose vehicles to buy assets at much lower valuations“, the chamber said.

Lauding the government’s move to amend the Banking Regulation Act, along with enabling changes in other related laws, the chamber said while empowering the RBI to help the banks by way of oversight committees was a welcome move, more would be required.

“The key would be to have persons of high integrity on these oversight committees, which then should be given all out support from the government to help the lenders resolve the top NPA accounts within a time bound period. What is equally important is that the persons mandated with the task can rest assured that they would be no fear of vigilance bodies after decisions involving some losses for the sake of reviving the stresses assets are taken in good faith,” said ASSOCHAM President Mr Sandeep Jajodia.

Once the resolution mechanism worked out by the individual banks or Joint Lenders’ Forum is approved by the RBI’s Oversees Committees, the bank officials implementing the resolution should be given a free hand without any fear of future probes, so that viable commercial decisions are taken.

In cases where the stressed assets or NPAs can be turned back into healthy assets, the existing promoters should be extended adequate working capital for the purpose.

He said barring very few and exceptional cases, most of the NPAs in stressed sectors like steel, power, telecom or infrastructure, have resulted from adverse business cycles marked by crash in commodity prices , making investments worth several lakhs of crores of rupees unviable. “This is a world wide phenomenon”.

What is important is that in some of the sectors, policy measures like the ones seen in steel, are seen to be helping. A similar approach is required in power, roads, ports and airports. The issues between the concessionaires and the state authorities as also with the green tribunals should be resolved without any delay and the projects be brought back on viability route.

It impressed upon the RBI to quickly clear all the pending applications from foreign investors for setting up Asset Reconstruction Companies in India, giving them a clear-cut   framework for business of asset reconstruction.