Comprehension Passage
In a big step towards resolution of bad loans, Indian banks, Reserve Bank of India and the union finance ministry are discussing setting up two special funds to resurrect troubled investments through equity infusion or more debt funds. The two funds proposed are Stressed Assets Equity Fund and Stressed Assets Lending Fund. "Creation of separate funds for resolution of stressed assets is being worked out. Indian Banks' Association (IBA) is finalizing the road map," adding the corpus of these two funds will be fluid and will take case-specific action.
According to RBI data, the stressed assets ratio for the banking sector, which includes gross non-performing assets (NPAs), increased to 14.5% at the end of December 2015 as against 9.8% at the end of March 2012. State-run banks have the highest share in stressed loans. Their gross NPAs or bad loans alone rose from Rs 2.67 lakh crore in March 2015 to Rs 3.61 lakh crore in December. A senior official with IBA said that the stressed assets equity fund (SAEF) will invest in equity of stressed borrower bringing equity to burdened projects. "It may take controlling stake either directly or through strategic debt restructuring scheme (SDR)," he said.
The other fund named stressed assets lending fund (SALF) will provide last mile funding or working capital funding to assets in trouble because of funding constraints. "An oversight committee will be formed to look into cases where these funds will invest. Discussions are on to work out the modalities," said the above quoted government official. Earlier this month, RBI had come out with a scheme for sustainable structuring of stressed assets, also termed as S4A, to strengthen the lenders' ability to deal with stressed assets and provide an avenue for reworking the financial structure of entities facing genuine difficulties. "The S4A envisages determination of the sustainable debt level for a stressed borrower and bifurcation of the outstanding debt into sustainable debt and equity/quasi-equity instruments which are expected to provide upside to the lenders when the borrower turns around," the RBI had noted in a statement.
What are Non-Performing Assets (NPAs)?
1
Assets of the banks which bring in cash.
2
Assets of the banks which don't bring any return.
3
Movable assets of the bank.
4
Immovable assets of the bank.