Lenders plan Rs 10,000cr own stressed asset fund

New Delhi: Banks on Monday got down to brainstorming on setting up a stressed asset fund on their own after the finance ministry turned down a proposal to provide support through the National Infrastructure Investment Fund (NIIF).
Sources told TOI that the government was of the view that NIIF was being set up to boost funding to long-gestation infrastructure projects on a profit basis and overseas investors might not be upbeat on investing if the resources were routed to revive ailing power or steel projects.In addition, given that NIIF enjoyed sovereign backing, a section within the government was not keen on supporting a stressed assets fund as the Centre might not want to be seen to be a party to commercial decisions of banks.
SBI chairman Arundhati Bhattacharya was aggressively lobbying for support from NIIF for setting up the stressed asset fund, which was recently cleared by the Reserve Bank of India. Minister of state for finance Jayant Sinha too had gone public with his support for NIIF backing to the proposed fund. "Banks are essentially trying to lob the ball in the government's court which will put further pressure on government resources," said a source. The stressed assets fund was expected to be part of the NIIF, which would be like India's sovereign wealth fund. The special situations fund was supposed to deal only with projects that are viable and can be nursed into health.
Indian banks are grappling with bad debt of close to Rs 6 lakh crore and several top banks reported losses during the last financial year.
Soon after a meeting of bank chiefs with finance minister Arun Jaitley on Monday, bankers huddled together to discuss the new fund, which was expected to have a corpus of around Rs 10,000 crore. Bankers said that lenders would now come together to create the corpus. "The government's position came as a disappointment. Now, banks have to put together the resources," said a bank executive.
Bankers said that they were hoping that the fund could provide some support to ailing assets as several of them were unable to find buyers at the right price. Once they were revived in a year or two and the market conditions improved, banks were planning to dispose of the assets.
"This is where support from NIIF would have helped. What we are getting are vulture funds, who are willing to take over the assets at a steep discount," explained a banker. In sectors such as steel, there was another problem as no company was willing to take over the management of another, given that most of the promoters are related. "Some of them are brothers, others are related through marriage. As a result, our efforts to work out arrangements to revive them are not successful," said a banker pointing to the steel sector.
Banks have also tried strategic debt restructuring in a few cases, but have not been successful.