Solving bank NPAs: New governance architecture, transparent process are a must, Sunil Mehta, PNB

Sunil Mehta, the non-executive chairman, Punjab National Bank (PNB), who was the chairman of the bankers' committee, said that the committee has recommended a five-pronged strategy to deal with the NPAs in the country's banking system.

Sunil Mehta committee, which was constituted to resolve non-performing assets (NPAs) issue, has submitted its report, titled Sashakt, to the government. Reuters

Sunil Mehta committee, which was constituted to resolve non-performing assets (NPAs) issue, has submitted its report, titled Sashakt, to the government. Post receiving the report, the interim finance minister Piyush Goyal said that the government has accepted the new resolution scheme submitted by the panel. The five-point strategy submitted by the committee aims at resolving the problem of NPAs through a market-led approach.

On the occasion, Sunil Mehta, the non-executive chairman, Punjab National Bank (PNB), who was the chairman of the bankers' committee, in an exclusive interview with Zee Business's Prakash Priyadarshi said that the committee has recommended a five-pronged strategy to deal with the NPAs in the country's banking system. Edited excerpts of the interview:

Q: The government has accepted the report submitted by the committee of bankers that was headed by you. Can you let us know about the recommendations that have been made in the report?
A: Basically, we have suggested five recommendations through our report and main objectives of the report were articulated in our presentation. It should actually be value accretive for the PSBs. There should be a new governance architecture there and there should be a process that is completely transparent. And for stressed assets that need to move into these categories of suggestions we have made should be at a very transparent price if it moves to AMC or AIF structure. Further, they should be compliant with current regulations so there is no special dispensation that is required. We looked at that primarily as the presence of a lot of dispensations delays the process. So our objective was that there should be a minimal intervention of the government and absolutely minimum or no dispensation from any regulatory authority.

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We have categorised them as such:
1. For small and medium enterprises (SME) there is a different template that is available to the banks to use that for resolving within 90 days.
2. The bank-led resolution process that is dependent on the banks entering into a binding interconnector agreement. And having an oversight committee, if the lead bank takes the responsibility for resolving or having a resolution plan in place and once that is in place then it should move into the implementation within a 180 days time frame. That is almost like a truncated IBC process. Its use in true sense can quickly resolve issues rather than pushing those assets into the NCLT process.
3. The third that we articulated is the AIF and AMC structures. That AMC will help in re-sub stating those assets and create value over a long period of time.
4. If it fails in providing a resolution then it can go to NCLT.
5. There is a new thing in which we are looking at is assets trading platform.

Q: Asset reconstruction companies (ARCs), asset management companies (AMCs) and alternative investment funds (AIFs) are present in the market. Then, how is it going to be different from them?
A: Their presence creates a vibrant market and its presence doesn't mean that it is going to be detrimental to the interest of the existing ARCs that are there. The objective is how do we create an asset management company (ARCs) that is partnering with ARCs. Because ARCs are really a pass through and then the asset management companies work for the turnaround of that asset that is funded through the AIF structure. Really, this AMC or AIF structure is supposed to be a market maker. Its presence will bring vibrancy to the market. The inclusion of more ARCs and AMCs is good for the market.

Q: But you said that it is going to be more market-driven, then what will happen to the asset valuation of the banks?
A: Its valuation will be done in a right way as it happens in the case of assets transfer. This is going to be different from the bad bank, as the transfers, in this case, will be based on a fair value or is going to be market driven. However, in case of bad banks, the transfers are based on the book value. In case of bad banks, the government is supposed to go for more capitalisation but the same is not going to happen in this case.

Q: Since it is an alternative system, how many banks, or will all public sector banks (PSBs), adopt the model?
A: We have provided our suggestions to the government. During our conversations, there was a special emphasis on the banks. Being optimistic, I feel more and more banks will like to adopt the system.

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Q: So, when should we expect that the work on the formation of AMC will begin?
A: We have deposited our report and now it depends on the banks and how fast they come forward to constitute the AMC. I am very optimistic that it will move quite rapidly.

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