July 09, 2018
8 months

What is Project Sashakt? Will it helps to solve the bad loan crisis in India? Discuss. (200 words)

Refer – Business Line

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Shankaranand 7 months

Please Review

Thank You

IAS Parliament 7 months

Good attempt. Keep writing.

IAS Parliament 8 months


·         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 8 months

Kindly review.

IAS Parliament 8 months

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