Professional Documents
Culture Documents
Purchase Capital
of Equity Equity Infusion
Need for Bank Re-capitalization
High Stressed Assets
01 Higher stressed Asset ratio of PSB’s in comparison
to privates sector banks reducing capital base
Financing Growth
02 Requirement of funds to finance priority sectors
including agriculture, and ensuring availability of credit
Regulatory Requirements
03 Basel III requirement of capital to risk weighted asset
ratio at min of 8%, RBI requirement of 11.5 %
Marketability?
03 In case bonds are not marketable, these will
remain in bank books and will hurt lending in
future
Prompt Corrective Action Matrix by RBI
(NPA Avoidance)
Why IBC?
Entry Stage
Continuance
1991 Market Based Economy Stage
Closure
Stage
The Insolvency and Bankruptcy Code, 2016 (IBC) is a legal framework in India that is
provisioned for consolidating the existing system through the creation of a single law for
insolvency and bankruptcy.
The IBC was introduced in the Lok Sabha, in December 2015. The Code came into effect in
December 2016.
IBC (NPA Resolution)
Greater Chance of
Shareholders 180 days
Default CoC Resolution else
/ promoters Resolution
liquidation
Dirty Dozens
Debt Bid Amount CIRP
Haircut Bidder Current Status
INR Cr INR Cr end date
Bhushan Steel
3. There has been a provision to allow Micro, Small, and Medium Enterprises
(MSMEs), those of which are not classified as willful defaulters, to bid for
their assets. This will be beneficial in aiding MSME promoters in stressful
times, and will smoothen the loan recovery process
• Separate • Banks will enter • Separate AMC • All bad loans • Trading
vertical at bank into a inter to be setup not resolved by between banks
level creditor • Institutional any of the and non- bank
• Loan resolution agreement funding approaches to investors
within 90 days • Lead Bank to through AIFs be transferred
provide to NCLT
resolution
within 180 days
AMC – AIF Led Approach
Should the asset be purchased
for a higher price by a third
party, that party will pay banks If no other bidder emerges for
An AMC would be set up and repay the 15 percent paid the asset, the AMC will
upfront by the AIF continue to hold it
• High returns
AIF investors look for at least returns of 20 percent plus in Indian rupee terms.
Foreign investors look for dollar returns of 13-14 percent. So if one has to get
this return, then the pricing is very crucial
Effect on Bank Stocks
An effective & swift mechanism to resolve NPAs is one of the most essential aspects
necessary for improving health of the Banking sector