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Title:Government to set up fund for banks' stressed assets

News Paper

NEW DELHI: The government is looking to set up a special fund to tackle the issue of stressed assets. This is expected to be part of the National Investment and Infrastructure Fund (NIIF), which would be like India's sovereign wealth fund. Although banks are seeing a slowdown in growth of fresh non-performing assets (NPAs), they are grappling with a huge pile of bad debt due to problems in certain companies and some sectors such as metals, and inability of several infrastructure projects to take off.

In an interview, minister of state for finance Jayant Sinha told TOI that the proposed special situations fund will deal only with projects that are viable and can be nursed back to health. "We have capitalized the (public sector) banks to deal with the provisions and we are taking action, including through the National Investment and Infrastructure Fund. We have the ability to find and potentially take over those assets which are viable but don't have fresh equity coming in," he said, adding that the NPA situation has stabilised. The proposed mechanism will help take the stressed assets off the balance sheets of banks and reduce pressure on them.

NPAs of Indian banks are pegged at 4.2% of total loans with public sector banks having a disproportionately higher share. Total stressed assets, comprising gross NPAs and standard restructured assets, are estimated at over 11% of total loans extended by the lenders. Although the situation at some banks such as Punjab National Bank has improved, Bank of India and Indian Overseas Bank are still reporting losses due to the huge pile of bad debt.

Like most special situations fund, the proposed fund would work with promoters and creditors to see how the capital structure could be restructured and induct operators or professional management that can take over the asset and nurse it back into shape. "One of the things that NIIF will do is to have this capability. Banks through the SDR (strategic debt restructuring) process will be able to take over equity in these projects. Once they take over equity, they want someone to step in to take that equity so that the asset can be turned around as they don't have the capability to manage these distressed assets. NIIF will bid for those assets along with the others who want to bid for it. Then, whoever puts in the best bid will take over these assets," Sinha explained. The government had announced the NIIF in the budget and plans to pump in Rs 20,000 crore annually. Several international investors have evinced interest in putting money in NIIF, which was initially conceived as a fund that would invest in long-gestation infrastructure projects, including railways.

During his visit to the UAE, finance minister Arun Jaitley is expected to discuss the issue with Dubai as well as Abu Dhabi authorities.