The committee has estimated a capital to support the haircut in the range of Rs 400-450 billion by resolving loans through the asset management company (AMC) or asset restructuring company (ARC) route.
Capital worth about Rs 500 billion will be required for PSBs to invest in alternative investment funds (AIFs), it said.
Apart from the additional capital, the panel has also sought some regulatory approvals to implement the plan. The panel has recommended seeking special dispensation from the Securities and Exchange Board of India to exempt the AIF from making an open offer under the Takeover Code.
According to Sebi guidelines, an acquisition of more than 25 per cent in a listed entity is termed as ‘control’ and requires an open offer.
Under an open offer, the acquiring company must make an offer to existing shareholders, aimed at giving them an exit option.
The panel further asked Sebi to allow AIFs to hold more than 51 per cent in listed securities as the non-convertible debentures issued will be listed and equity for many entities may also be listed. Investments by banks in AIFs attract 150 per cent risk weight for the first three years and 250 per cent after that period and the panel sought some relaxation from the Reserve Bank of India (RBI).
“The investments of the AIF under discussion are predominantly debts as the AIF would subscribe to the bonds issued by a borrower company.
Hence, a dispensation may be sought from RBI to allow capital required by banks to hold AIF units to be as per rating of the bonds issued by a credit rating agency,” the report stated.
It also asked the central and state governments to exempt stamp duty and registration fees for all transactions under the proposed plan. Under Sashakt, the committee recommended bad loans amounting to less than Rs 500 million will need a special small and medium enterprises assets vertical in banks, those in the range of Rs 500 million-Rs 5 billion will need a bank-led resolution process and loan accounts above Rs 5 billion will have to be resolved through the asset management company route,
Apart from these, assets with a potential of turnaround may go through the Insolvency and Bankruptcy Code and an asset trading platform may be set up by financial institutions to trade performing and non-performing loans.
A massive recapitalisation plan for PSBs is already underway with the government announcing a Rs 2.11 trillion capital infusion programme in October last year. Of the Rs 1.35 billion to be infused through recapitalization bonds, the government has already infused about Rs 710 billion in the banks, Rs 113 billion in five PSBs last month and balance would be done during this fiscal.