TWO Important Models:-
RBI deputy governor Viral Acharya recently suggested two models to solve the problem of stressed assets.
The first, Private Asset Management Company (PAMC),is said to be suitable for sectors where the stress is such that assets are likely to have economic value in the short run, with moderate levels of debt forgiveness. Some of the sectors which this model could address metals are telecom and textiles.
In this model, each resolution plan would get vetted and rated by at least two credit rating agencies to assess the financial health and in terms of timeline, the banking sector may be asked to resolve and restructure, say, its 50 largest stressed exposures in these sectors, by December 31, 2017, the deputy governor had proposed.
The second model is the National Asset Management Company (NAMC), which would be necessary for sectors where the problem is not just one of excess capacity but possibly also of economically unviable assets in the short- to medium-term. Mr. Acharya cited the example of the power sector, where projects have been created to deliver aggregate capacity that is beyond the estimated peak utilisation any time soon.
“Unlike the first model (PAMC) where asset recovery is likely to be relatively quick, these assets may require a long time to start generating cash flows,” Mr. Acharya said. He, however, declined to call these entities as ‘bad’ banks.
RBI deputy governor Viral Acharya recently suggested two models to solve the problem of stressed assets.
The first, Private Asset Management Company (PAMC),is said to be suitable for sectors where the stress is such that assets are likely to have economic value in the short run, with moderate levels of debt forgiveness. Some of the sectors which this model could address metals are telecom and textiles.
In this model, each resolution plan would get vetted and rated by at least two credit rating agencies to assess the financial health and in terms of timeline, the banking sector may be asked to resolve and restructure, say, its 50 largest stressed exposures in these sectors, by December 31, 2017, the deputy governor had proposed.
The second model is the National Asset Management Company (NAMC), which would be necessary for sectors where the problem is not just one of excess capacity but possibly also of economically unviable assets in the short- to medium-term. Mr. Acharya cited the example of the power sector, where projects have been created to deliver aggregate capacity that is beyond the estimated peak utilisation any time soon.
“Unlike the first model (PAMC) where asset recovery is likely to be relatively quick, these assets may require a long time to start generating cash flows,” Mr. Acharya said. He, however, declined to call these entities as ‘bad’ banks.
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