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iasparliament
July 09, 2018
13 days
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What is Project Sashakt? Will it helps to solve the bad loan crisis in India? Discuss. (200 words)

Refer – Business Line

Enrich the answer from other sources, if the question demands.

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Shankaranand 24 hours

Please Review

Thank You

IAS Parliament 11 days

KEY POINTS

·         Project Sashakt – the Sunil Mehta-led committee’s five-point plan on bad loan resolution. It focuses on –

a)     SME resolution approach

b)     Bank-led resolution approach

c)      AMC/AIF led resolution approach

d)     NCLT/IBC approach

e)     Asset-trading platform

·         Bad loans of up to 50 crore will be managed at the bank level, with a deadline of 90 days.

·         For bad loans of Rs. 50-500 crore, banks will enter an inter-creditor agreement, authorizing the lead bank to implement a resolution plan in 180 days, or refer the asset to NCLT.

·         For loans above Rs. 500 crore, the panel recommended an independent AMC, supported by institutional funding through the AIF.

How it helps in solving bad loan crisis?

·         The recommendations are less likely to be an immediate solution for early resolution of NPAs.

·         Approach – Large banks helping smaller lead banks to run the resolution process, if required, sounds an ineffective suggestion.

·         The bank-led resolution approach has largely failed in the past.

·         Clearly, this is the reason why alternative plans to resolve NPAs quickly are being sought.

·         Consensus – The lead bank's resolution plan to be approved by 66% of the lenders (by value) merely replaces the earlier JLF.

·         The JLF (joint lenders’ forum) structure failed miserably as it fell short of building consensus.

·         The present committee report has missed to address this real challenge.

·         Small banks – The structure also fails to serve the interests of smaller banks.

·         If restructuring involves additional finance, small banks may be affected.

·         As, unlike the larger ones, smaller banks may not prefer giving good money after the bad loans.

·         Reconstruction – The report points out the lacunae in the existing functioning of asset reconstruction companies (ARCs).

·         But it fails to address how such issues will be tackled under the proposed AMC or AIF structure.

Way forward

·         Quick-fixes like utilising healthy banks' or institutions' assets to rescue stressed banks may not be sustainable.

·         The long awaited structural reforms for the banks are:

a)     empowering the bank boards

b)     setting a roadmap for consolidation

c)      Centre diluting its stake in PSBs

·         These have to be paid attention to, and the Centre has to push through these reforms.

Abhishek Dandriyal 12 days

Kindly review.

IAS Parliament 12 days

Points are good. Use the link just as a reference and add more of your own insight. Keep writing.

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