MUMBAI: The government is looking to launch a fund to invest in stressed assets, minister of state for finance minister Jayant Sinha said on Tuesday, as regulators strive to clean-up bad loans, which have stifled banks’ lending power.
“We are working towards a stressed assets fund. As I have said multiple times in the past, we need an efficient resolution and then recovery processes for our banks for many of their stressed assets,” Sinha said on the sidelines of an event by credit ratings agency CRISIL in Mumbai. “We are working on that approach, which also includes a committee to look at how those hair-cuts are done, and what banks decide on with respect to sustainable levels of debt. Those sustainable levels of debt are going to be commercial decisions for banks, but we want to make sure the process is a high-integrity process.”
“We expect a variety of funds — stressed debt fund, special situations fund, and NIIF (National Investment and Infrastructure Fund) — to then participate in equity investment in these stressed assets.”
The gross non-performing assets (NPAs) — loans that do not yield returns — of listed banks have already jumped to over ` 5.80 lakh crore at the end of March 2016, from around ` 3 lakh crore a year-ago.
Television channel CNBC TV18 earlier on Tuesday reported that the government was considering launching a distressed debt fund, with several parties, including NIIF and State Bank of India (SBI) potentially involved.
According to the report, an arm of SBI may team up with global private equity major Warburg Pincus and two sovereign wealth funds from West Asia to launch a $3-billion distressed assets fund.
According to CRISIL, a deeper corporate bond market is crucial for economic growth, as a sharp fall in profitability has diminished the ability of public sector banks to generate capital from internal accrual, while weak operational performance, driven by a surfeit of NPAs, have made it difficult for them to raise money from the capital market.
He also said it was prudent for the Reserve Bank of India to continue with its asset quality review of the banks. Lenders reported a surge in bad loans in the six months to March after an asset quality review ordered by the central bank.
“We are working very closely with them (RBI officials) on this type of systemic analysis and this stress testing and we have known all along what are the stress assets level likely to be,” Sinha said.