Project Sashakt-For Tackling NPAs
The mounting bad loan problem of Public Sector Banks is a thorn in the Indian
economic growth story. The effect of which is being played out over the years in the form of slowdown in the economy. The sparse availability of formal credit is hampering the progress of many businesses. Banks with their money locked away in the form of stressed assets are struggling to recover them. In this scenario, the Government of India formed a high-level committee on restructuring stressed assets and creating more value for public sector banks
(PSBs). Chaired by Sunil Mehta, Non-Executive Chairman of Punjab National Bank, the committee submitted its report recently. It has brought out a five-pronged strategy to resolve stressed assets called Project Sashakt.
The strategy includes:
i. An SME resolution Plan
ii. A bank-led resolution process
iii. Creation of an Asset Management Company (AMC)
iv. An asset trading platform
v. Resolution through NCLT/IBC
Banking Governance Issues
Indian banks are hit not just by the alarming rise in NPAs but also by serious governance issues. The allegations of corruption at the level of a Managing Director in an Indian private sector bank makes for a loss of credibility on the banking system. The biggest threat the system face is the loss of credibility among the ordinary public who refuse to park their money in the banks.
What is a Bad Bank?
When a bank has mountainous non-performing loans (NPLs), the natural lending action of the bank is hampered resulting in loss of depositor confidence. When the problem becomes pervasive and too big for individual banks to handle, governments often propose the setting up of a bad bank to buy out all toxic loans from banks.
This helps banks get on with business as usual, while the bad bank grapples with recovering the loans or realising cash from selling the underlying assets.