Bank of Baroda MD backs govt's AMC strategy to tackle NPAs, says will participate in funding

04 Jul 2018

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  • PS Jayakumar, the managing director and chief executive officer of Bank of Baroda, said the bank will participate in funding for the AMC/AIF.
  • The panel recommended that the loans above Rs 500 crore will be dealt with via the AMC/AIF-led resolution process. 
  • An asset management company invests its clients' pooled funds into securities that match declared financial objectives.

With the government backing the Sunil Mehta-led panel's recommendations and releasing a five-pronged strategy to set up an asset management company or an alternative investment fund for the troubled banking sector, PS Jayakumar, the managing director and chief executive officer of Bank of Baroda, said the bank will participate in funding for the AMC or AIF.

The panel recommended that the loans above Rs 500 crore will be dealt with via the AMC/AIF-led resolution process.

Jayakumar said there is an ability to raise funds for the AIF to enable state-run banks for buying out the assets. On participating in the AMC/AIF process, he expects good participation from the banks.

"Domestic and international participants are keen on participating," said Jayakumar. He also expects other asset reconstruction companies to team up and raise substantial money.

Jayakumar further said that there are a certain rules which have to be followed for the participation.

The banking sector's gross non-performing assets (NPAs) stood at Rs 10.25 lakh crore as of 31 March 2018. The sector has been witnessing a rise in their bad loans' account over the last one year.

The government, to retrieve the loans, passed the Insolvency and Bankruptcy Code (IBC) Act last year which looks into the stressed accounts.

However, the proceedings have not seen much progress yet while the efforts are still on to stabilise the sector.

The funds collected for the AMC move will be institutional money, Jayakumar said.

"The framework of the AMC or AIF is that of an open architecture. The preparatory steps are underway and it soon will enter the market," the Bank of Baroda chief said, adding that the move is beneficiary from an immediate and a long-term view.

An asset management company invests its clients' pooled funds into securities that match declared financial objectives.

"If the AMC is formed for the state-run banks, the inter credit agreement will be done soon which will enable resolution of lower ticket sized non-performing loans as the capital size of the AMC will be fairly small," Jayakumar said, adding that the average  provision coverage ratio in the system is between 55 and 57 percent.

About Bank of Baroda Bank of Baroda

(“The Bank”) established on 20th July 1908 is a State-owned banking and financial services organisation, headquartered in Vadodara (earlier known as Baroda) in Gujarat, India.

Bank of Baroda is India’s leading public sector bank with a strong domestic presence supported by self- service channels. The Bank’s distribution network includes 8,200+ branches, 10,000+ ATMs, 1,200+ self-service e-lobbies and 20,000 Business Correspondents. The Bank has a significant international presence with a network of 100 branches/offices of subsidiaries, spanning 20 countries. The Bank has wholly owned subsidiaries including BOB Financial Solutions Limited (erstwhile BOB Cards Ltd.), BOB Capital Markets and Baroda Asset Management India Ltd. Bank of Baroda also has joint ventures for life insurance viz. IndiaFirst Life Insurance Company Limited and India Infradebt Ltd., engaged in infrastructure financing. The Bank owns 98.57% in The Nainital Bank. The Bank has also sponsored three Regional Rural Banks namely Baroda Uttar Pradesh Gramin Bank, Baroda Rajasthan Gramin Bank and Baroda Gujarat Gramin Bank.

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