India: Project Sashakt – a technique to deal with NPA

September 17, 2018


India has witnessed evolution in the banking industry since its inception when the Reserve Bank of India was established in 1935. With the growing awareness post demonetization, there has been increased diversion of the people towards the banking sector, which focuses on a number of functions including acceptance of funds in the form of fixed deposits or liquidated funds, granting of loans, agent for fund transfer and additional facilities like locker operation to safeguard the valuables of the clients.

With the increase in the banking practices, the industry faces challenges hampering its growth. Non-performing assets (hereinafter referred to as “NPA”) pose a threat to the development of banks. An NPA is a loan or advance for which the payment remains outstanding for a period of 90 days. Recent times have witnessed quite an increase in the NPA cases resulting in great losses to the banks.

With a view to strengthen the credit capacity, credit culture and credit portfolio of public sector banks, the Government of India brought forward ‘Project Sashakt’ proposed by a panel led by PNB chairman Sunil Mehta. The said project has the below stated strategy to deal with non-performing assets:

  • Bad loans of up to INR 50 crore (USD 6975000 approx.) will be managed at the bank level, with a deadline of 90 days.
  • In case of bad loans of INR 50-500 crore (USD 6975000 – 69750000 approx.), banks will enter an inter-creditor agreement, authorizing the lead bank to implement a resolution plan in 180 days, or refer the asset to National Company Law Tribunal (hereinafter referred to as “NCLT”).
  • For loans above INR 500 crore (USD 6975000 approx.), an independent Asset Management Company (hereinafter referred to as “AMC”), supported by institutional funding through the Alternative Investment Fund (hereinafter referred to as “AIF”).

Presently, the bad loans of the 38 listed banks collectively crossed INR 10.17 lakh crore in the March quarter, and the RBI expects the Gross NPA (hereinafter referred to as “GNPA”) ratio of scheduled commercial banks to rise further. With the aid of this project, the Government aims to create a more stable and efficient mode to prevent the accumulation of NPA.

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