NEW DELHI: The committee on stressed assets has estimated that public sector lenders will need Rs 1.1-1.3 lakh crore over a two-year period to deal with resolution of stressed assets, including funding of the proposed asset management company (AMC) and the stressed asset fund.
The capital requirement will be over and above the additional funds that banks would need to set aside for potential losses from loans that are classified as non-performing over during the two-year period. While the government is to provide Rs 65,000 crore as its share of equity, the remaining amount will come through the sale of non-core assets, internal accruals and planned equity raising, said Punjab National Bank chairman Sunil Mehta, who chaired the committee.
“If you take all this into account this is not as daunting as we thought when we started the exercise. This is best estimate made by the committee for capital requirement over a two-year period. This is not an insurmountable amount,” Mehta told TOI, when contacted.
So far, the government has maintained that it will not provide funding beyond the Rs 65,000 crore that has been budgeted for recapitalisation this year.
The report of the committee showed that a bulk of the funding is needed for restructuring loans of more than Rs 500 crore that are spread across 200 companies. Banks will be required to dispose of the loans to the asset reconstruction companies at a discount, with the cost estimated at Rs 40,000-45,000 crore.
Similarly, assuming that public sector banks will provide 30% of the capital for investment in the units of the proposed alternate investment funds to deal with the stressed assets, the fund requirement has been estimated at Rs 4,000-5,000 crore. The remaining 20-30% is targeted to be raised from private sector lenders, with the rest coming from domestic institutions and foreign investors.
At the same time, the committee has also budgeted for a release of Rs 6,000-7,000 crore from the sale of assets, resulting in a little lesser fund requirement of Rs 37,000-42,000 crore.
Additionally, capital will be required for the asset reconstruction company (ARC) that will tie up with the proposed AMC and the stressed asset funds to place bigger bets. The ARC will need Rs 2,000-3,000 crore capital, assuming that it will have assets worth around Rs 10,000 crore at any point of time, the panel estimated.
The calculations will undergo a change if banks are unable to set up the fund and the AMC before RBI’s 180-day deadline ends on August 27, which will result in companies going to the National Company Law Tribunal for action under the Insolvency and Bankruptcy Code.