The government unveiled a new scheme to cover bad loans for banks. This is a combined initiative of the Indian government and the banks to revive bad loans without involving the Insolvency and Bankruptcy Code (IBC). The government will be taking the aid of asset management companies (AMCs) and investment funds to clean up the bad loans.
Under the scheme, the government will push for loans of up to Rs.50 crore for medium scale and small scale enterprises and mid-segment loans of more than Rs.500 crore. The scheme will especially focus on using independent asset management companies to help banks and other financial institutions to manage the assets that are acquired by asset reconstruction companies (ARCs). Proper asset management will nurse the financial institutions back to its health and improve the value when the market is in good shape.
Another aspect of the plan is to include alternative investment funds (AIFs) that would provide the necessary funding to support the asset management companies and asset reconstruction companies to get the full loan from all the banks.
The initiative is set to be implemented soon, helping the banks to generate capital in place of securities issued by the ARCs that mature over a period of 5-6 years. The new strategy will efficiently combat stressed assets for the banks without the government’s investment.