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Project Sashakt was proposed by a panel led by PNB chairman Sunil Mehta. The idea is to help consolidate stressed assets.


Recommendations of Sunil Mehta Committee

The five-pronged resolution route outlines five features for bank resolution:

  1. An SME resolution approach
  2. Bank-led resolution approach
  3. AMC/AIF led resolution approach
  4. NCLT/IBC approach
  5. Asset-trading platform


This route will be applicable to the following, which have a potential for turnaround –

  1. Smaller assets with exposure up to Rs.50 crore
  2. Mid-size assets between Rs.50 crore and Rs.500 crore
  3. Large assets with exposure of Rs.500 crore and more


Large assets

  • For large assets, an independent asset management company (AMC) will be set up.
  • The resolution route is also applicable to larger assets already before the National Company Law Tribunal (NCLT).
  • It would also cover any other asset whose resolution is still pending.
  • The process will cover both performing and non-performing assets.



Mid-size assets

  • The committee called for a bank-led resolution approach for these.
  • The resolution plan has to be approved by lenders holding at least 66% of the debt.
  • The independent steering committee appointed by the Indian Banks Association (IBA) has to validate the process within 30 days.
  • The resolution for this category would be achieved in 180 days.
  • In this category, the key challenge would be to arrive at a consensus. This is because the exposure is held by multiple banks/lenders.



  • The committee suggested setting up of a steering committee by banks for SMEs resolution.
  • This will formulate and validate the schemes, with a provision for additional funds.
  • The resolution should be complete within 90 days.


It also suggested that the resolution be under a single bank’s control.

The bank will have the liberty to customize the resolution process.


AIF – Alternative investment fund (AIF)

  • It would raise funds from institutional investors.
  • Banks would be given an option to invest in this fund if they wish.
  • AIFs can also bid for assets in National Company Law Tribunal (NCLT).


The lead bank can discover price discovery through the open auction route.


How AMC work?

According to the committee,

  • Banks will have to set up an AMC under which there will be multiple sector-specific AIFs.
  • These funds will invest in the stressed assets bought by existing ARCs, such as ARCIL.
  • The ARCs will use the funds to redeem security receipts issued to banks against the bad loans.
  • Other AMC-AIFs and ARCs will be allowed to bid for these assets, and match the pricing offered by ARCIL or the national AMC.
  • The AMC will be responsible for the operational turnaround of the asset.


Who will own the stressed asset?

The ARC after buying the asset from lenders will transfer ownership to the AIF. The new owner, the AMC-AIF, will hold a stake of at least 76%.

The Sashakt Committee has recommended that the existing Inter-Creditor Agreement (ICA) to incorporate the revised voting threshold and other changes for decision making stipulated by the Reserve Bank of India.

This will enable expeditious implementation of the new framework on stressed assets.


Inter-Creditor Agreement (ICA)

It is a big step taken by the key lenders of the country to tackle the menace of non-performing assets (NPA) or bad loans.

  • The agreement is part of the proposed Project Sashakt.
  • The objective is to use this ICA for faster facilitation of resolution of stressed assets.
  • It is aimed at the resolution of loan accounts with a size of Rs. 50 crore and above that are under the control of a group of lenders.


Provisions of Inter-creditor Agreement

  • If 66% of the lenders agree to a resolution plan it would be binding on all lenders.
  • A ‘dissenting creditor’ is that which votes against or abstains from voting for the resolution plan approved by the committee.
  • A dissenting creditor could sell its loan at a discount of 15% of the liquidation value to other lenders.
  • Liquidation value is the amount at which a company could sell its assets and settle liabilities.
  • Another option is to sell their loans to any person at a price mutually arrived between dissenting lender and the buyer.
  • However, it cannot sell it to an asset reconstruction company.
  • The agreement has a standstill clause wherein all lenders are barred from enforcing any legal action against the borrower.
  • During standstill period, lenders are also barred from transferring or assigning their loan to any other person except a bank or finance company.


Parties to the Inter-creditor agreement

As per the agreement,

  • 24 lenders led by SBI and PNB signed an inter-creditor agreement to speed up the resolution of stressed assets in the range of Rs 500 million-Rs 5 billion under consortium lending.
  • The ICA is to be entered into by 22 public sector banks that include India Post Payments Bank, 19 private sector banks and 32 foreign banks.
  • Other signatories in the agreement will include 12 leading financial institutions such as LIC, Power Finance Corporation and Rural Electrification Corporation etc.


Arrangement in the Inter-creditor agreement

ICA will work as below,

  • The lenders in the agreement will jointly appoint a lead lender who will function on behalf of the entire group.
  • The leading lender will then be required to put forth the resolution plan for the non-performing assets (NPAs) before the group and if it is given a go-ahead by two thirds of the lenders, the proposal will qualify to be taken up for resolution of the given account.
  • The resolution through this arrangement will be primarily focused on mid-sized stressed loan or non-performing accounts (NPAs).


Responsibilities of lead lender

The lead lender will shoulder several responsibilities including:

  1. Submission of the NPA resolution plan before the overseeing committee. The oversight committee is expected to be created by Indian Banks’ Association (IBA) in a month’s time.
  2. Each resolution plan has to comply with Reserve Bank of India norms, guidelines and applicable laws.
  3. Taking decision in respect of the sustainable debt in relation to an NPA account
  4. The pact allows the lead lender to implement the plan in 180 days.



  • For the services rendered, lead lender will be offered a fee and is shielded from other liabilities.
  • First progress review under the inter-creditor agreement might be executed after three months of time.
  • The inter-creditor agreement or pact will stand terminated in certain situations such as the direct intervention by the Reserve Bank of India.



  • The obligation on the lead lender to come up with a time-bound resolution plan can have unintended consequences.
  • Banks may be compelled to engage in a rush sale of stressed assets due to arbitrary deadlines.
  • This will work against the interests of lenders looking to get the best price for their stressed assets.
  • Besides, the biggest challenge to bad loan resolution is the absence of buyers to purchase stressed assets.
  • There is also the unwillingness of banks to sell their loans at a deep discount to their face value.


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