NIIF may Lend a Hand to Resolve Stressed Assets

 NIIF may Lend a Hand to Resolve Stressed Assets

Infra fund could be roped in as investor to set up ARC to take over stressed loans

The National Investment and Infrastructure Fund (NIIF) may be roped in as an investor to set up an asset reconstruction company (ARC) that will take over the stressed loans of state-run banks, said a senior government official.

“Bankers are thinking to get NIIF as a sponsoring agency. They (banks) themselves can pitch in some capital,” the official said, adding that Asset Reconstruction Company of India Ltd, sponsored by public sector banks (PSBs), has legacy issues.

Acting finance minister Piyush Goyal had last week announced a committee under the chairmanship of Sunil Mehta, non-executive chairman of Punjab National Bank, to examine the idea of an ARC and/ or asset management company (AMC) for faster resolution of stressed assets involving multiple state-owned lenders. The committee is to give its recommendations in two weeks.

The government holds a 49% stake in NIIF, which has a proposed corpus of Rs 40,000 crore. It signed an agreement last October to raise dollar 1 billion from a wholly owned subsidiary of the Abu Dhabi Investment Authority. NIIF has a master fund and a permissible fund of funds below that, one of which could participate in the ARC.

The official cited above said the proposal to set up an ARC came from the banks themselves. “The government did not propose it as we don’t want to interfere in their (banks’) functioning,” he said.The resolution of bad loans has picked up pace through the Insolvency and Bankruptcy Code but the government feels an ARC can speed up the process.However, the government also does not view the proposed ARC as an alternative to the existing resolution system under IBC.

“The ARC can deal with small non-performing assets (NPAs) for which there are no takers,” the official said, adding that the government cannot allow small companies to flounder. “We have to resolve this. Small and medium enterprises cannot be sold to foreign firms.”The proposed ARC would also refer cases for resolution through IBC, he said.

Immediate Relief for Banks

Another official aware of the deliberations said only those cases where banks feel recovery is possible outside IBC may be transferred to such an entity. The idea behind such a structure is to provide immediate relief to banks and free up their capital for fresh lending.However, he feels some issues may need to be resolved before the ARC is set up. “There are multiple issues like what the haircut will be when these loans will be offloaded, and will there be vigilance issues if the recoveries are higher than the price at which the asset was sold off,” he said.

The Economic Times, New Delhi, 13th June 2018