PSBs can find resolution under Project Sashakt now

New Delhi: Public Sector Banks (PSBs) may now use provisions of Project Sashakt to deal with economically unviable projects, said a senior government official, adding that lenders could still initiate corporate insolvency proceedings if there is no other mode of resolution within 180 days.

“The concern that erring promoters will get off the hook is unfounded and banks can still find resolution and take necessary action,” he said, referring to Tuesday’s apex court ruling that held the central bank’s February 12, 2018, circular as unconstitutional.

Under the aegis of Project Sashakt, 35 banks have signed an inter-creditor agreement (ICA), which provides the framework to resolve assets through a bank-led resolution approach (BLRA). Under the agreement, if the lead bank is unable to implement a resolution plan in 180 days, the assets will then move to the National Company Law Tribunal (NCLT) process.

The Supreme Court, in its judgement on Tuesday, held the Reserve Bank of India (RBI) directions issued on the treatment of defaults as ‘ultra vires,’ or not valid in respect to the existing legal framework.

In its ‘Resolution of Stressed Assets–Revised Framework’, the RBI had called on lenders to identify assets “immediately on default,” beginning with loans on which any amount was due from one to 30 days.

Banks were also directed to find resolution for stressed firms with exposure greater than Rs 2,000 crore within 180 days, failing which lenders had to initiate insolvency proceedings. The RBI circular had also scrapped corporate debt restructuring (CDR), strategic debt restructuring (SDR), scheme for sustainable structuring of stressed assets (S4A) and the joint lenders’ forum (JLF) – mechanisms that were used earlier by banks to restructure debt defaults as the IBC process had settled into place. Another senior banker confirmed that the ICA signed by banks continues to hold and so does the 180-day framework.

“Unless banks through Indian Banks Association (IBA) decide to change the terms, it stands,”

he said. A finance ministry official said that as per the Insolvency and Bankruptcy Code, even if an asset in not classified as an NPA, it can still be taken up for resolution.

“So, in that sense, banks have the discretionary power to approach NCLT if they feel that the asset is impaired,” he said.

Punjab National Bank chairman Sunil Mehta, who headed the committee on Project Sashakt, said that the bank-led resolution process is also backed by an oversight committee. “If 66 per cent of the lenders are on board, a timely and efficient resolution can be achieved. We have already seen success in a few cases and the flexibility of the ICA, already executed by 35 banks, will lead to speedier resolution,” Mehta said.