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Bad Banks in India | Contents Bad Banks in India November 2020 0
Bad Banks in India | Contents Contents India – Banking sector Non-Performing Assets 3 Impact of COVID-19 on Banking sector NPA 5 Bad banks – An overview 6 Bad banks – Prior experience and evolution 7 Pros and Cons of establishing a Bad bank 8 Bad bank – Alternatives 10 Bad bank – Global experience 12 Conclusion 14 Appendix 15 1
Bad Banks in India
India || Contents
Contents
2Bad Banks in India | India – Banking sector Non-Performing Assets (NPA)
India – Banking sector
Non-Performing Assets
(NPA)
The issue of Non-Performing Assets (NPAs) in the
Indian banking sector has long been a subject of
much discussion and scrutiny, impacting (PSU) banks’
capacity to lend in the past
Introduction Over the 11-year period since, the GNPA
A sound banking system is a prerequisite for SCBs increased to INR 9,36,474 The stress in PSU banks
for developing a sound financial and crores at 31 March 2019, implying a
economic system. However, the issue of CAGR of 33.06 per cent, far outstripping
has increased
non-performing assets is a huge hurdle the growth of banking sector credit significantly over the
in the smooth functioning of the banking growth during the same period.
system. A high level of NPAs indicates a years
high probability of credit default thereby An analysis by Centre for Financial
reducing the overall efficiency and Accountability indicates this: “The table below highlights that
effectiveness of the lending system. It stress in PSU Banks has increased
also significantly reduces the availability Between FY15 and FY19, if opening significantly from 5.0 per cent of
of credit, thus creating a problem not NPAs were based at 100, on an average, gross advances at Mar-15 to 11.3 per
only for the banks but also for policy real slippages were being added at 67 cent of Gross advances at Mar-20.
makers, affecting the economic growth per cent, recoveries with upgradation at
of the country. 20 per cent, while write-off contributed Similarly, GNPA for all SCBs has
above the recoveries at 22 per cent. This increased from 4.3 per cent to 8.5
Banking NPA – Status (Pre COVID-19) has resulted in cumulative NPAs per cent during this period.
In the last few years, banks have been increasing at 25 per cent (100+67-20-
under the scanner because of increasing 22=125) in the past five years.
NPAs. The Gross NPA (GNPA) of all
Scheduled Commercial banks (SCBs) in
India in 2007-08 was INR 40,452 crores.
3Bad Banks in India | India – Banking sector Non-Performing Assets (NPA)
Table: Trend in Indian Banking NPA
Country FY15 FY16 FY17 FY18 FY19 FY20
Public sector Banks 5.0% 9.3% 11.7% 14.6% 11.6% 11.3%
Private Sector Banks 2.1% 2.9% 4.1% 4.7% 5.3% 4.2%
Foreign Banks 3.2% 4.2% 4.0% 3.8% 3.0% 2.3%
Small Finance banks 0.0% 0.0% 1.2% 2.5% 2.0% NA
GNPA (%) – All SCBs 4.3% 7.5% 9.3% 11.2% 9.1% 8.5%
GNPA – SCBs (INR TN) 3.2 6.1 7.9 10.4 9.4 NA
Gross Advances - SCBs 75.6 81.7 85.0 92.7 102.3 NA
Source: RBI Financial Stability Reports
Global context
As per World Bank data, share of NPA to
gross loans in Indian banking is
“As per available numbers (some of which significantly higher compared to
are provisional) at this point of time, the
developed western economies and also
overall capital adequacy ratio for scheduled
commercial banks (SCBs) stood at 14.8 per
exceeds most other emerging
cent as in March 2020, compared to 14.3 per economies, with an exception of the
cent in March 2019. The CRAR of PSBs had Russian Federation.
improved from 12.2 per cent in March 2019
to 13.0 per cent in March 2020. Large unresolved NPAs over a sustained
period of time have proven detrimental
The gross NPA ratio and net NPA ratio of to policy making and economic growth
SCBs stood at 8.3 per cent and 2.9 per cent in for many economies in the past.
March 2020, compared to 9.1 per cent and
3.7 per cent as on March 2019, respectively.
The Provision Coverage Ratio (PCR) improved
NPA (%) on Gross loans
from 60.5 per cent in March 2019 to 65.4 per 15.0
cent in March 2020, indicating higher
resiliency in terms of risk absorption 9.4 10.1 9.2 9.5
10.0
capacity.”
5.0 2.9 3.7
Shri Shaktikanta Das (RBI Governor) 1.3 0.9 0.9 1.1 1.7 1.2 1.7 1.8
at a recent address at Seventh Banking & 0.0
Economics Conclave on 11 July 2020 USA UK Germany South China Russia India
NPA (%) on Gross loans - 2016 NPA (%) on Gross loans - 2018
Background to rising NPA
As per an ex-RBI Deputy Governor, the
stressed assets have been an outcome
of excessive bank lending, in a relatively
short period from 2009 to 2012, and to a
concentrated set of large firms in a
number of sectors such as
infrastructure, power, telecom, metals
(iron and steel, in particular),
engineering-procurement-construction
(EPC), and textiles.
4Bad Banks in India | Impact of COVID-19 on Banking sector NPA
Impact of COVID-19 on Banking
sector NPA
As per RBI’s 21st Financial Stability Report (July 2020), macro stress tests for credit risk
indicate that the GNPA ratio of all SCBs may increase from 8.5 per cent in March 2020 to
12.5 per cent by March 2021 under the baseline scenario. If the macroeconomic
environment worsens further, the ratio may escalate to 14.7 per cent under very severe
stress.
Additional NPA stress scenario. This, however, does not
take into account the proposed The policy imperative
mergers or any further
The impact of the Covid-19 pandemic recapitalization. Industry participants and policy
and the ensuing lockdowns is expected makers are evaluating multiple
• In the wake of Covid-19, the RBI had
to add another layer of stress on the options on the way to control the
announced a six months loan
already stretched Indian banking impending NPA wave. There is added
moratorium for all term loans. The
system. As per a recent note by rating urgency because the government
same was applicable from 1 March
agency India Ratings and Research (Ind- has put on hold any fresh reference
2020 to 31 August 2020.
RA): to the NCLT under the Insolvency
• As per RBI data, about 80 per cent and Bankruptcy Code, 2016 (IBC) for
“In a scenario wherein funding markets of retail borrowers who had taken one year.
continue to exhibit heightened risk loans from public sector banks had
aversion, corporate stress could increase availed of the moratorium. For Further, according to a report by
further by INR 1.68 lakh crore, resulting NBFCs and small banks, that figure Kotak Institutional Equities, banks
in INR 5.89 lakh crore of the corporate was 45.9 per cent and 73.2 per cent, have seen an average haircut of 88
debt becoming stressed in FY21-FY22. respectively. per cent in the cases that were
Consequently, 20.8 per cent of the resolved in the October-December
• The Covid-19 lockdown had a
outstanding debt could be under stress 2019 period, which was the highest
significant impact on all industrial
in the agency’s stress case scenario.” percentage of haircut that lenders
activities in the economy resulting
have had to take in a single quarter
in major income loss. This has
RBI’s assessment of COVID-19 impact since the introduction of the IBC in
impacted their loan repayment
2016. The report states: “Barring a
ability.
few cases, almost all resolutions in
• The RBI has warned that the GNPA • This may lead to Gross Domestic Q3 FY20 had a haircut of more than
ratio of all SCBs may increase from Product (GDP) contraction by 8.9 60 per cent.”
8.5 per cent in March 2020 to 12.5 per cent in 2020-21
per cent by March 2021
• The RBI projected that Capital
• The GNPA ratio may also worsen to Adequacy Ratio (CAR) ratio could
as high as 14.7 per cent by the end slide to 13.3 per cent in March 2021
of the current financial year, if the under the normal scenario and to
adverse economic impact of the 11.8 per cent under the very severe
Covid-19 pandemic would be ‘very stress scenario.
severe’
• The RBI has stated that the Indian
• Stress test results indicate that 5 financial system remained stable,
banks may fail to meet the despite the significant downside
minimum capital level by March risks to economic prospects in short
2021 in a very severe stress term
5Bad Banks in India | Bad banks – An overview
Bad banks – An overview
With banking sector GNPAs in India perhaps already above INR 10 lakh crore, and expected
to increase to upwards of INR 15 lakh crore in the near future, there is an increasing ask to
unburden the banking system of NPAs and expedite the recovery process.
Overview called ‘Sashakt’ for resolving large bad – The fiscal implications would be
One of the key ideas being deliberated is loans. similar to public sector bank re-
the formation of a Bad bank/s to help capitalization. Over the years,
de-stress banking balance sheets. Illustrative Bad bank structure the Government has been
An illustrative Bad bank structure could recapitalizing PSU banks and
A Bad bank is a corporate structure that potentially work as outlined below. The has already infused over INR
isolates risky assets held by banks in a illustration draws from Malaysia’s 3.5 lakh crore in last five years.
separate entity. It is established to buy experience with their institutions As per ICRA estimates, the
toxic assets from a good bank at a price ‘Danaharta’ and ‘Danamodal’ after the capital requirements for PSU
that is determined by the Bad bank, Asian crisis. banks would be in the range of
most likely with a haircut to the book INR 20,000-55,500 crore in
value of the stressed loans being • The government could set up a bad 2020-21 as against government
transferred. It may be controlled by the bank (‘Bank X’) with an agreed upon planned budget of INR 25,000
government, and apart from the capital base. The equity infusion crore for re-capitalization.
government, other private players invest could be funded via Government of
• If Bank X recovers more than the
in its equity. It may raise loans from India re-capitalization bonds issued
consideration paid on acquired NPA
other participants. These transactions to subscribers
loans, it may be required to share a
happen at arm's length and a Bad bank
• Bank X could acquire tranches of certain portion of such excess with
is managed by professionals with
bad loans from across Banks/ the transferring banks. Any recovery
domain knowledge of managing stressed
NBFCs. Assuming average fair value below such fair value would be the
assets.
of 40 per cent of book value of sole liability of Bank X. This
loans transferred, Bank X could approach could help address the
The Indian Banks’ Association (IBA)
acquire up to 2.5x worth of gross concerns around asset valuation for
recently submitted a proposal to the
NPA from troubled lenders both the transferring lender/s and
Finance ministry and the Reserve Bank
for Bank X and help build
of India (RBI) to set up a ‘Bad bank’ to • By transferring such assets to the
transparency and trust in the
take charge of c. INR 75,000 crore worth Bad bank, the original institution
process.
of non-performing assets (NPAs) and could clear its balance sheet,
had requested the government to although it would still be forced to Such Bank X is to be headed by
provide INR 10,000 crore of initial take write-downs specialized distressed asset
capital. As per media reports, IBA had professionals with proven integrity and
• To protect the interests of taxpayers
proposed to set up an Asset experience. Also, the bank could have a
and to restore trust, this transfer
Reconstruction Company (ARC), an Asset finite lifespan to address NPAs.
would have to be done at fair
Management Company (AMC) and an
market valuations i.e. at a discount
Alternate Investment Fund (AIF). The
to book value, as certified by
ARC will be owned by the government,
Government appointed
but the AMC and AIF will have
independent valuers
participation from the public sector as
well as the private sector, as per the – Steep haircuts in certain cases
proposal. might lead to capital adequacy
challenges in a few PSU and
The proposed structure of a Bad bank is private Banks, necessitating
based on the earlier recommendations recapitalization on a need-basis
of a panel headed by former PNB for these banks
chairman Sunil Mehta in July 2018, that
had proposed formation of an AMC
6Bad Banks in India | Bad banks – Prior experience and evolution
Bad banks – Prior experience and
evolution
While India has never had a Bad bank in the past, the concept is not new. The idea of setting
up a Bad bank was first proposed in an Economic Survey conducted in January 2016. There
were discussions on creating a Bad bank in 2018 as well, but it did not materialize
The core purpose of the Bad bank would be to buy bad loans from banks at a discount, in order to attempt recover of money
from various defaulters. The Bank would need to be a centralized agency in a position to take tough decisions. This section
attempts to describe various points of view as to whether there is an actual need to set up a Bad bank in India and if yes, the
design of such an institution.
Case study: Industrial Reconstruction purpose vehicle (SPV) trust for May 2019 after examining
Bank of India (IIBI) acquiring NPAs of erstwhile IDBI. cases above INR 50 crore that
were sold to ARCs between
• 636 stressed/non-performing cases
2013-14 and 2017-18 by PSBs.
with aggregate loans of over INR
• The Industrial Reconstruction – The report mentions that, in at
9,000 crore were hived off to the
Company of India was set up in least 48 cases, assets were sold
SPV
1971, with the purpose of to ARCs below the realizable
rehabilitation of sick units • However, it could only recover less value of security
than half at INR 4,000 crore at the • Low recovery: Recovery of security
• It was re-modelled as IIBI or
end of March 2013, according to a receipts via ARCs sold by PSBs
Industrial Investment Bank of India
2014 audit report by the between 2013-14 and 2017-18 has
in 1985 and was assigned the role of
Comptroller and Auditor General of been subdued
buying bad loans from commercial
India (CAG)
banks to recover these debts
• However, IIBI became sick
eventually due to lack of strict Case study: ARC model in India
recovery laws. The Government had
to infuse approximately INR 263
crores as grants to IIBI from 2004- • In India, private asset
2005 and from 2005-2006 for reconstruction companies (ARCs)
servicing its debts have been buying NPAs from
various banks (29 registered ARCs
• There was also a proposal to merge
operate in India currently), but the
IIBI and other institutions such as
model has not yielded desired
IFCI and IDBI, but the proposals
results.
were rejected; IBBI eventually
closed down in 2012 • ARCs act merely as recovery agents
because they lack the bandwidth to
Case study: IDBI Stressed Asset
reconstruct any company under
Stabilization Fund
stress which is sold as a going
• In 2004, IDBI (Industrial
concern.
Development Bank of India) was
provided with a bailout package to • The efficacy of the ARC model is
shift its bad loans to a Stressed under question:
Asset Stabilization Fund (SASF)
– The Central Vigilance
• The SASF was constituted by the Commission (CVC) submitted a
Government of India as a special report to the government in
7Bad Banks in India | Pros and Cons of establishing a Bad bank
Pros and Cons of establishing a Bad
bank
While India could deliberate on the case for establishing a Bad bank, it is critical to evaluate
the pros and cons for the same.
In-house management Vs ‘Bad Bank’ setup: Key considerations
When managing non-core assets, banks must decide between in-house management and a structured solution such as a ‘bad
bank’. Whilst complex to set up, a structured solution gives a strong message to the market, optimizes the transfer of risk,
facilitates straightforward portfolio sales and therefore makes rapid deleveraging simple, all whilst insulating the ‘good bank’,
enabling it to recover from the crisis, and thrive.
Facilitation of
Model Operations Risk transfer Market Ease of Portfolio
External Investments
Confidence in Bad Banks
Sales in Bad Bank
Segregated Portfolios Limited Risk Transfer Challenging
Upon Setup (mixed value
Simplest Least Transparent Least Straightforward
Management (Subsequent portfolio attribution, impacts
reporting only sales will transfer risk) “good bank”)
Management
In- house
Virtual Non-Core
Creation of Straightforward
internal division
External
reporting
SPV or classic ‘Bad
Bank’ Most Straightforward
Separation
Minimum Risk (simple attribution,
Most complex Greatest Transparency Straightforward
Legal
Transfer Upon Setup insulation of “good
Separate legal bank”)
entity
Key arguments in favor of establishing a - Reduce the balance sheet and debts. International experience
Bad bank: realise value from non-core shows that a professionally run
Bad banks are more complex and time assets through tailored central agency with government
consuming to set up but have benefits solutions backing could overcome the
both in terms of the core franchise and coordination and political issues
- Release capital into or lower
in terms of the non-core assets which that have impeded progress over
the capital requirements at the
are being worked out. the past years.
core business
• Domain expertise:
• Frees management bandwidth and • Quicker resolution: Pooling of bad - A dedicated Bad bank may be
specifically allows the management assets under a single entity can help better than a number of PSU
to: in terms of resolutions (quicker banks replicating similar
- Focus on driving the decisions) as and when growth departments in their respective
performance of the core improves and demand for these organizations
business assets increase.
- Under a competent
- Right-size the infrastructure for • Plugs in loopholes in ARC model:
management and Board, the
the organization Private-run ARCs have not seen
much success in resolving bad
8Bad Banks in India | Pros and Cons of establishing a Bad bank
value of these stressed assets of the assets under estate, IT and portfolio
could be better preserved consideration is estimated to sales/M&A
be low.
- Domain focus could potentially - The need to utilize
help tap long-term pools of - Transfer at computed fair value restructuring techniques for
foreign and domestic capital via with steep haircuts may cause a non-core assets when the
equity/debt issuance versus severe blow to bottom line of workout unit itself has an
the transferring bank, intensive workload
• Price Discovery: A Bad bank may be
preventing a full transfer of risk
better suited to fix the appropriate - The need for management to
to the Bad bank as
price. The transferring bank could focus primarily on developing
contemplated
make additional provisions in case the core franchise (good bank)
the discovered cost is less than the • Lack of buyer demand: The price at whilst appropriately managing
book value and the Bank wants to which toxic assets are to be the non-core assets
retain the asset on its books. transferred may not be market-
• Ownership disputes: Various
determined and price discovery may
Capital relief: Based on the existing options could be explored for the
not happen
prudential norms as defined by the RBI, ownership of Bad banks - entirely
• A key challenge includes the need
NPAs are still accounted for in the government-backed funding,
for rapid, reliable data collection
branch books, whereas the private funding, or a public-private
and analysis:
corresponding advances are also partnership (PPP). While global Bad
- Development of a detailed
adjusted for provisions and write-offs to bank models with favorable
recovery/deleveraging plan
arrive the Net Advances figure as outcomes were largely Government
published in the audited books of - Design of a structure that owned, many see advantage in
accounts. meets capital objectives having a Bad bank owned by the
banks collectively. This would
- Project based set up with cost
Key arguments against establishing a ensure that when a bad loan is
base carefully aligned with
Bad bank: resolved, the profits would accrue
asset recovery/deleveraging
• Potential steep haircuts: to the owners, i.e. the banks
activity
- A prominent issue with Bad themselves. This would make the
banks is not the need for it, but - Developing and managing loss they booked on selling the non-
how to set it up, particularly appropriate resources in areas performing assets at a discount,
when debt and equity capital is such as restructuring and more palatable.
scarce and costly and fair value recovery, commercial real
9Bad Banks in India | Bad bank – Alternatives
Bad bank – Alternatives
Many experts argue that the enactment of IBC regulations has reduced the need for having a
Bad bank, as a transparent and open process is available for all lenders to attempt insolvency
resolution.
A former RBI Dy. Governor had proposed two alternative models for a Bad bank in 2017:
Private Asset Management Company plans. Each resolution plan would authorities. Sustainable debt would
(AMC) lay out sustainable debt and debt- be upgraded to standard status for
• This plan would be suitable for for-equity conversions for banks all involved banks. The promoters,
sectors where the stress is such that and cash flow prospects to facilitate however, would have no choice as
assets are likely to have economic the issuance of new equity and to what restructuring plan is
value in the short run, with possibly some new debt to fund the accepted.
moderate levels of debt forgiveness investment needs. Each resolution
• At expiry of the proposed timeline,
plan would then get vetted and the
• In terms of timeline, the banking each exposure that is not resolved
asset rated by at least two credit
sector could be asked to resolve and would be subject to a steep sector-
rating agencies. The rating would
restructure, say its 50 largest based haircut for the bank
assess the financial and economic
stressed exposures in these sectors consortium, possibly close to 100
health and management quality.
within a limited time frame of say, 6 per cent. The promoter would have
Feasible plans would be selected
months. The rest could follow a to leave and these assets would be
such that they improve ratings a
similar plan in six months moved to the IBC.
minimum of two credit ratings
thereafter.
above threshold default level. • Such asset management company
• For each asset, turnaround would be entirely private, similar to
• Banks could then choose among the
specialists and private investors, the “Phoenix” structure set up in
feasible plans. Haircuts taken by
other than affiliates of banks Spain after 2012 to deal with bank
banks under a feasible plan would
exposed to the asset, may be called NPAs in Machinery, Steel and
be required by government ruling as
upon to propose several resolution Winery segments.
being acceptable by the vigilance
National Asset Management Company (NAMC)
• The second model is an NAMC for sectors where the problem is not just of excess capacity, but possibly also of economically
unviable assets in the short- to medium-term, such as in the power sector.
• The NAMC would raise debt for its financing needs, keep a minority equity stake for the government, and bring in asset
managers such as ARCs and private equity to manage and turn around the assets.
Figure: NAMC structure examples
Centralised, Multi-bank, Bad Bank Schemes Government Guarantee Schemes
Good Investments
Government Guarantees
Third Party Bank Shareholders
Good Premiums
Investors
Bank Government
SPV
Bad (guarantor)
NPLs Bank
Government
SPV NPLs Loss Protection
(Equity/ Debt) Cash Distributions
purchase subject to Threshold
Distributions
Note: Government can act as similar guarantor for an SPV
Examples: Sareb (Spanish Bad Bank), NAMA (Irish Bad
Bank), UBS (Switzerland), Securum / Retriva (Swedish Bad Examples: Citi (US), Bank of America (US)
Bank), RTC (US Bad Bank)
10Bad Banks in India | Bad bank – Alternatives
Advantages of the National AMC Key considerations - Assets Key considerations - Infrastructure
structure -
• There may be a large number of • Servicing could initially take place
NAMCs are more complex and time originating banks, which would across a large number of originating
consuming to set up but provide many make the set-up of a National Asset banks. It would be necessary to
advantages if a sector-wide solution is Management Company more amalgamate this and form a view on
required: complex best practices. It would also be
critical to set strong SLAs to ensure
• Single institution delivering greater • Visibility over the current/end
that reporting, KPIs, rights,
transparency for investors, portfolio may be difficult, and it
obligations and incentives are
regulators and other stakeholders would be necessary to devise a
clearly communicated
common reporting template
• Facilitates a sector wide strategy
• In the medium term, the servicing
and oversight • COVID-19 has affected SMEs across
could go out for tender in order to
the industry spectrum, making
• Ability to enforce common simplify and maintain tighter
management more complex than a
standards and approach control
single asset class, but furthermore,
• For regulators/ supervisors, a single SME data is likely to be very poor • High volumes would require
entity to focus on rather than many standard viability testing and
• Governments should look not only
structures based on sustainable
• Single funding structure and to take bad loans from banks, but
debt levels and EBITDA. It may be
approach carve out entire debtors which have
necessary to define debt
borrowing from multiple banks, or
• Allows common approach to sustainability at the industry level
the government, or have
common borrowers regardless of
government guarantees • Technology would play a key role;
origination
The system could either allow
• Need to consider the structure and
• Centralized pool of underlying real servicers to run with their own
funding of new money requests
estate collateral provides technology (with common
(debt/equity/working capital)
opportunity for central control and reporting) or design a common
strategy for longer term benefit of servicing platform for all players to
the real estate market use
• Control moves away from existing
management
11Bad Banks in India | Bad bank - Global experience
Bad bank - Global experience
In the past, multiple mechanisms and measures have been adopted by other jurisdictions to
tackle increasing non-performing loans. Of these, the following countries are relevant to
study from an Indian context.
Country Malaysia Ireland Thailand Korea Indonesia China
AMC regime Public Public Public & private Public & private Public Public
(mixed public &
private
ownership)
National AMC Danaharta NAMA SAM BAM KAMCO IBRA Cinda (listed)
name (listed 2019) Huarong (listed)
China Orient,
Great Wall,
Galaxy,
Provincial AMCs
No. of National 1 1 2 1 1 4+1+N
AMCs
First established 1998 2009 2001 1997 1998 1999
Current Status Inactive Live Live Live Inactive Live
Main asset type Corporate CRE Mixed SME Corporate, Corporate Corporate/SME
& Retail public and
households
Key law/ Danaharta Act NAMA Act AMC Decree KAMCO Act Banking Law Government
regulation (law no. 10 of banking reform
1998)
Key characteristics Transfer of NPLs Large strategic Mix of public Acquires and Transfer of NPLs Country level
from target real estate and private resolves from target effort to reduce
banks with a focused. sector solutions financial banks with a NPLs from all
finite life AMC. NAMA acquired at national, bank institution’s finite life AMC. banks. Since
Dealt with 12,000 loans at and investor NPLs and In 2002, IBRA there was an
nearly 3,000 a cost of €31.8 level. corporate failed to influx of bad
NPL accounts billion from five A key restructurings. accomplish its assets with
and its lifetime banks. NAMA differentiator KAMCO mandate and negligible
loan recovery adopted a between TAMC purchased shifted its demand,
rate of 58 per consensual and other AMCs, 30,000 odd NPLs strategy to rapid realized sale
cent surpassed approach with is that the with a face value asset value was low,
the typical 20‐50 the debtors former does not of US$ 92 billion disposition. resulting in
per cent range towards have the power (won 110 trillion Over the period, losses at the
for similar resolution to sell loans to - 20 per cent of IBRA sold 60 per AMC level
agencies in Asia. third parties. the GDP). The cent of its NPL (AMCs
However, it can discount portfolio and
depended on
12Bad Banks in India | Bad bank - Global experience
sell foreclosed the type of loan, the average achieved an
real estate to with the highest recovery rate overall recovery
third parties. prices paid for was 22 per cent, rate of 33.6 per
ordinary loans with 44 bank cent, with cash
(67 per cent), owners deemed recovery at 22.4
lowest price was to violate the per cent.
paid for regulations of
unsecured Bank Indonesia.
ordinary loans
(11 per cent)
and the other
loans ranged
between 20-50
per cent.
Key learnings from global experience structure could lead to losses for
Based on global experience, key the AMCs.
learnings for a prospective Indian Bad
bank entity are as follows:
1. A common key success factor is
substantial upfront government
funding, with less reliance on other
banks, borrowings or AMC bonds
for capital. If the AMC/s are funded
mainly through debt, they run the
risk of accrued interest on bonds
and loans exceeding the cash
recovery from the resolution of
NPAs.
2. The Bad bank entity/ AMC could
broaden its shareholder base by
inviting participation from domestic
and foreign institutional investors.
3. The Bad bank could be established
with a finite lifespan to ensure
better resolution and to reduce
logjams
4. The bad bank could include
professionals outside government
staff, with secondment from the
private sector, including reputable
banks, investment banks and
international and sectoral experts
5. The NPAs should be transferred to
AMCs at fair value considering a
probable haircut and not at book
value. If NPAs are transferred at
book value, all losses would need to
be taken at the AMC level. In a
scenario of negligible demand and
low realized sale value, this
13Bad Banks in India | Conclusion
Conclusion
While there's no official communication Banks' Association. The government's prudential write-off & IBC haircut
from the RBI about the creation of a view is that bad loan resolution should provisions made during the last four
'bad bank' or a one-time loan happen in a market-led way.” years have further accentuated the
restructuring proposal so far, a loan problem. In most cases, it is the PSU
NPAs in India have reached an alarming
recast scheme for certain categories of Banks that are the worst hit because of
level, given short term and long term
borrowers has been announced. such provisions. Smaller banks have also
issues, combined with the stringent
suffered given their presence as smaller
As per a Government official, "We have provisioning policies and guidelines of
consortium participants as well as lower
studied the banks' proposal (bad loan). the Regulators and the ruling
diversification in loans.
The fact is there are already market-led Governments. Lack of appropriate credit
options available for asset risk processes, lack of transparency in To pivot towards sustainable lending
reconstruction and it looks better that the operations and lack of democratic going forward, the Government would
way," atmosphere in the banking industry and need to act fast on resolving the NPA
certain indiscriminate lending has added issue, bring in accountability with
“The government is not keen to infuse
to the pile of NPAs. Major write-off lenders and reforms to guard against a
equity capital into a bad bank, which has
provisions including unhealthy repeat of the bad loan cycle.
been recently proposed by the Indian
14Bad Banks in India | Conclusion
APPENDIX
15Bad Banks in India | Conclusion
BAD BANK – GLOBAL EXPERIENCE
In 1980s, the US based Mellon bank proposed the idea of ‘Bad Bank’ as a strategy to manage bad loans. The Grant Street National
Bank (1988), held USD 1.4 billion of bad loans, that was later dissolved in 1995. Globally, ECB is working on a draft to manage bad
debt piling due to Covid stress.
A. Malaysia – Danaharta-Danamodal central bank (BNM) realized the Debt Restructuring
In 1998, Asian crisis severely need for large scale resolution and Committee (CDRC).
impacted the Malaysian Banking jointly announced various
- BNM provided incentives such
system, the NPL ratio spiked from measures:
as recapitalization to banks
3.6 per cent at June 1997 to 13.2
- Setting up of an AMC who achieved sell off NPLs to
per cent by the end of 1998.
(Danaharta) for acquiring Danaharta.
Although, short-term measures NPLs and restructuring them - Consolidation through
such as pegging exchange rate to maximize recovery, a mergers
system to USD, capital controls and banking recapitalization
a fiscal stimulus package provided agency once NPLs are sold
some relief, the government and (Danamodal) and a Corporate
Figure: Revival strategy implemented
Malaysia bad bank experience - - Danaharta dealt with nearly 3,000 - The CDRC resolved 47 cases with
outcome NPL accounts and its lifetime loan total debt amounting to RM 43.9
recovery rate of 58 per cent billion, with 83 per cent of recovery
With the above cohesive efforts, the surpassed the typical 20‐50 per cent proceeds in cash, redeemable
government and BNM were able to range for similar agencies in Asia. instruments and re-scheduled
curtain NPLs (down from 13.2 per cent debts.
in CY1998 to 7.6 per cent in CY04) and - Danamodal infused over RM 7
achieve consolidation by bringing down billion in CY99 and CY2000. As of With the banking system coming back
the number of commercial banks to 10 November 2003, all banks, except on track, stock prices of large Malaysian
from 50. RHB Bank Berhad, repaid their loans banks shot up during that period.
and it was closed by end‐2003.
16Bad Banks in India | Conclusion
B. Ireland - NAMA purposes, obtain the best of €42.6 billion (or 57 per cent of
Background: In late 2008, post the achievable financial return for the amount owned by borrowers).
collapse of construction and the state In the end, NAMA acquired 90 per
property markets and crash in cent of the identified eligible loans
NAMA established special-purpose
bank share prices, the Irish and the value was removed from
vehicle (SPV), to avoid
government announced a blanket the books of banks. It issued
consolidation of the Irish public
guarantee of all Irish bank government-guaranteed bonds of
accounts. The National
liabilities amounting to €440 €30.2 billion to banks and
Management Agency Investment
billion, or twice the annual gross remaining €1.6 billion was paid by
Limited (The Master SPV
domestic product (GDP). The the issue of subordinate debt on
purchases, manages and sells the
guarantee was based on the belief NAMA’s financial performance.
distressed assets and issues debt
that banks needed temporary
securities to purchase assets) is Performance: NAMA’s
liquidity but were intrinsically
owned at 51 per cent by three performance is measured by cash
solvent. Due to the steady
private companies and 49 per cent generation from its portfolio,
downfall of bank share prices and
by NAMA. Under the shareholders’ ability to repay its debt and invest
property prices, the government
agreement between NAMA and in its asset and manage debtors
injected capital into three largest
private investors, the former (82 per cent of the portfolio, rest
Irish banks; Anglo Irish, Allied Irish
exercises a veto over decisions are managed by the banks). All the
Banks and Bank of Ireland
taken by the company. debtors had to agree to business
(government injected €3.5 billion
in the latter two banks in return plans; to generate both recurring
Establishment and early years: By
for preference shares). and sales income.
the end of 2010, most of the loans
acquired from the participating NAMA adopted a consensual
In March 2009, a report on options
banks had been transferred to approach with the debtors, which
for resolving troubled property
NAMA. Instead of using Asset meant; 1) the debtors had to agree
loans proposed the creation of
Quality Review (AQR) to access to schedules of the asset and loan
National Asset Management
transfer price, NAMA used sales 2) reverse certain asset
Agency (NAMA). Few reasons why
discounted cash flow of the transfers 3) grant NAMA charges
NAMA was preferred: 1) The
collateral values and appointed over unencumbered assets and 4)
property had not yet reached rock
real estate appraisers to value c. putting rental income from
bottom 2) The government had to
10,700 properties. In parallel, the investment assets controlled by
exit from blanket guarantee as the
Central Bank of Ireland debtors within NAMA’s control. If
Irish sovereign debt was
implemented two rounds of the debtors failed to comply,
unfavorably priced and there was
forward-looking capital enforcement actions were taken.
no plan on Irish banks’ capital
requirements assessments in 2010
adequacy problems. 3) Re-
and 2011. Together, it resulted in A key aspect of NAMA’s work has
establish credibility in the Irish
cumulative capital requirements of been to provide funding on a
banking system.
€79 billion (46 per cent of 2011 commercial basis (to complete
Mandate and legal powers: NAMA GDP). existing projects and commence
was created by an Act of new projects). A total of €1.6
NAMA adopted a long-term billion was approved for residential
Parliament in November 2009 with
economic valuation methodology; and commercial developments,
the following objectives:
an uplift factor to reflect with a raise up to €3 billion for
• To acquire impaired assets anticipated proceeds from the residential development and
from the credit institutions property sales when market delivery of the Dublin Docklands
participating in the NAMA conditions normalized. The Strategic Development Zone; a
scheme average uplift factor was 8.5 per fast-track planning area earmarked
cent against the projected disposal to provide commercial
• Deal expeditiously with the receipts by 5.25 per cent. accommodations for the growing
assets
foreign direct investments in
NAMA acquired 12,000 loans at a
• Protect, or otherwise enhance Ireland.
cost of €31.8 billion from five
their value, in the interests of
banks. The face value of the loans Challenges: After six years, NAMA
the state
and associated financial derivates faces challenges with respect to
• Insofar as possible and acquired was €74.4 billion which staffing: Initially NAMA
consistent with those led to crystallizing losses in banks
17Bad Banks in India | Conclusion
remunerated staff at par to private
sector and implemented bonuses
but since it falls under the public
sector it had to eliminate the latter
and cut wages, which resulted in
losing critical staff members.
Although in recent years, NAMA
introduced a retention scheme
with redundancy payment if staff
remained until the institution was
wound up. The other challenge
was cleaning up of the banking
system: NAMA could not clean up
the bad assets of the banking as it
extended beyond land and
development loans. The non-
performing loans (NPLs) in Irish
banking system at the end of 2014
accounted to 23 per cent of the
total loans. Establishment of a
standalone AMC to deal with land
development loans and
complimentary policies to deal
with small NPLs such as a new
personal insolvency framework
and accelerated write-off policies
are necessary as banks could not
classify the loans.
18Bad Banks in India | Conclusion
C. Thailand - TAMC and/or reorganize the debtor’s representative of the Federation of
Background: Prior to 1997, the business operations, an effort to Thai Industries, another from Thai
Thai economy grew at an annual return the firm to profitability and Chamber of Commerce and third
rate of c.10 per cent that later enable it to repay its debts. from Thai Bankers Association. The
resulted in large current account Majority of the sub-quality assets directors, with a term of six years
deficit, appreciation of the transferred to TAMC were from has a board policy of setting
exchange rate, increase in short- state-owned banks and obligations powers; operational rules,
term foreign debt and a weaker of larger borrowers involved in regulations and procedures and
financial sector leading to a multi-creditor transactions. are responsible to supervise the
financial crisis that depreciated the general affairs of TAMC.
baht and downfall of economic A key differentiator between
activity, investment, consumption, TAMC and other AMCs, is that the The internal audit committee
and export demand. former does not have the power to appointed by the board is
sell loans to third parties. outsourced to Pricewaterhouse
Total assets in the financial sector However, it can sell foreclosed real Corporation (PwC) and the
amounted to THB 8.9 trillion ($212 estate to third parties. TAMC external auditor is performed by
billion or 190 per cent of the GDP), allows a period of twelve years the Office of Auditor General. It
of which the commercial banks from the date of the law (June 7, also appoints an executive
accounted for 64 per cent of the 2013), although there are several committee who has the powers,
total. As the economy grew, intermediary dates that may result duties and responsibilities to
demand for real estate increased in TAMC to cease its operations manage the sub-quality assets
whereby banks lent funds despite earlier than the latest allowed acquired from the financial
the supply outpacing the demand. date. institution.
With the financial crisis, borrowers
with loans defaulted that caused Initial capital of TAMC was one TAMC organizational structure
the level of NPLs in commercial billion baht all owned by the includes four asset management
banks to raise to 48 per cent by Financial Institution Development departments and one business
1999 from 12 per cent in 1997. Fund (FIDF), a separate legal entity restructuring department. The
within the Bank of Thailand (BoT- former is responsible for assessing
Several strategies were adopted by established in 1980s); to provide the viability of borrowers and
the Thai authorities to reduce the liquidity and solvency support to businesses; to plan, implement and
level of NPLs in the banking financial institutions. BoT issued monitor debt restructuring
system, one of which was the short-term notes to fund the initial schemes. While the business
establishment of Corporate Debt capital of TAMC. To increase restructuring department manages
Restructuring Agency that capitalization TAMC issued shares the restructuring plans to support
facilitated the restructuring of the to the public or any other person the AMC and business
loans by the banks and their approved by the Council of restructuring process.
borrowers. Later, a law was passed Ministers, the remaining unsold
to encourage banks to establish shares was purchased by FIDF. Rules for assets:
their own asset management
companies (AMCs) as subsidiaries. In short, TAMC was established not • Asset acquisition: TAMC
However, the authorities followed as a liquidation authority, but as a divides the financial
the practice of other Asian re-establishment and restructuring institutions into two: 1) more
countries and established a agency with a focus on revival and than 50 per cent owned by the
government-owned and operated continuation of businesses to government or FIDF include
AMC. enable them to repay their debts single and multiple-creditor
and strengthen the larger loans that are expected to
Establishment of TAMC: The Thai economy. account to 80 per cent of the
Asset Management Company total asset transfers and 2)
(TAMC) was established by an Organization structure and privately owned institutions
Emergence Decree (Law) on June oversight: TAMC board of directors are permitted to transfer
8, 2001 as a state agency. The goal appointed by the Minister of multi-creditor NPLs.
was to consolidate the Finance and approved by Council • Asset Transfer: All sub-quality
management of sub-quality assets of Ministers comprises of a assets owned by the
of the financial institutions and Chairman and 11 other members, government or FIDF owned
AMCs; to restructure the debts of which at least one must be a institutions as of December
19Bad Banks in India | Conclusion
31, 2000, including assets cent gain should not exceed
where the financial institution the difference between the
and borrower are involved in a book value and the transfer
lawsuit to settle the debt and price of the asset) and above
assets, but have not received a this will belong to TAMC. In
verdict from court, must case of loss suffered, when the
transfer to the TAMC. On the amount recovered from the
other hand private financial asset is less than the transfer
institution may transfer sub- price, i.e., less than 20 per
quality assets to the TAMC on cent of the transfer price will
certain conditions, to name a be borne by the transferring
few, 1) the asset must be a financial institution, equal to
NPL as of December 31, 2000 20 per cent of the transfer
and be secured with two or price will be shared equally
more creditors and the and further losses will be the
debtors must be a juristic sole responsibility of TAMC.
person 2) aggregate book • Amount and types of
value of the borrower’s debts transferred assets: Assets are
to all creditors must be at not transferred to TAMC on an
least THB 5 million and 3) the ongoing basis. Through June
financial institution and the 30, 2002, 4,631 cases with the
debtor cannot enter into a total book value of THB 18
restructuring agreement billion in five tranches was
within 30 days of the coming transferred to TAMC at an
into effect 4) prior to the average transfer price to book
effect of the law, the value of 33 per cent
Bankruptcy Court cannot have
approved a rehabilitation plan Resolution of transferred assets
that includes the NPL in and debtor cases: TAMC can
question. resolve and collect transferred
• Transfer price of assets: The assets and is limited by the law to
transfer price acquired form certain strategies. As of August
the government or FIDF 2002, the number of resolved
owned financial institutions is cases reached 800 with a total
the market value of underlying book value of THB 293 billion of
collateral where from private which, 61 per cent were approved
financial institution is lesser of for debt/ business restructuring or
the market value of the rehabilitation in the Bankruptcy
underlying collateral or the court while the rest were resolved
book value of the transferred by foreclosure of collaterals, final
assets minus statutory receivership of assets, or verdict by
reserves required by BoT. the Civil Court.
• Gain-loss sharing agreement
applied to transferred assets:
TAMC and the transferring
institution share in the gain
and losses generated by the
assets under management,
but not on equal basis. If a
gain is recorded, any amount
up to 20 per cent of the
transfer price of the asset will
be shared equally and the
additional gain will to go
transferring institution (on
aggregation the first 20 per
20Bad Banks in India | Conclusion
D. Korea - KAMCO between KDB and other financial of interest. Since the bonds were
Background: Until 1999, Korea institutions. guaranteed by the government,
experienced a twin currency and they carried zero percent risk
banking crisis. Large current KAMCO was focused on the weight for regulatory capital
account shortfalls, highly leveraged acquisition, management and purposes, a strong incentive for
corporate sector, strong reliance disposition of NPLs. In addition, it banks to sell NPLs and improve
on short-term external financial supported the financial institutions their capital base with a minimum
and currency mismatch for both through purchase of NPLs; perform 8 per cent capital adequacy ratio.
debtors and creditors contributed as a “bad-bank” that engages in
to the crisis. Korea’s financial corporate restructuring by Asset acquisition: KAMCO was
system, in terms of total assets extending loans, debt-equity authorized to purchase NPLs from
represents more than twice of its swaps, payment guarantees and various financial institutions;
annual 2001 GDP of which 60 per recover public funds through the commercial banks (bulk purchases
cent accounts to the lending efficient management and disposal – 56 per cent of face value),
amount from the commercial of assets. merchant banks, investment
banks. The estimated peak level of trusts, insurance companies and
non-performing assets (NPAs) is The Act required NPL resolution securities firms. NPLs that had
said to have exceeded KRW 100 activities to be conducted through multiple creditors and whose
trillion (18 per cent of GDP) and Non-Performing Asset removal was considered critical to
official and market estimates of Management Fund (The NPA Fund) restructuring of the organizing
NPLs as a ratio of loans with a separate legal entity and institution were purchased on
outstanding for the commercial different funding sources. priority.
banks reached 8 per cent and 15
Organization structure: KAMCO is KAMCO purchased 30,000 odd
per cent respectively.
governed by 11-member NPLs with a face value of USD 92
To stabilize to economy and Management Supervisory billion (won 110 trillion – 20 per
financial system, large-scale Membership which consists of the cent of the GDP). The discount
International Monetary Fund (IMF) managing director of KAMCO, depended on the type of loan, with
support package of USD 60 billion representatives from the Ministry the highest prices paid for ordinary
and government financial of Finance and Economy (MOFE), loans (67 per cent), lowest price
resources was injected into the Ministry of Planning and was paid for unsecured ordinary
economy. The government relied Budgeting, the FSC, the Korea loans (11 per cent) and the other
on Korean Asset Management Deposit Insurance Corporation, the loans ranged between 20-50 per
Company (KAMCO). deputy governor of KDB, two cent.
representatives from banking
Establishment of KAMCO: KAMCO industry and three professional In 1997, to stabilize the financial
was established in 1962, as a recommended by the managing sector KAMCO purchased in bulk
subsidiary of the state-owned director. Public Fund Oversight to speed up the transfer process
Korean Development Bank (KDB) Committee led by the MOFE where the final settlement price
for the purpose of liquidating monitors the NPA fund. was close to the loan loss
KDB’s performing assets. In 1966, provisioning rates then in effect
it purchased NPLs from other Funding: The NPA Fund’s principal and was subject to negotiation of
financial institutions and over the source of financing NPL purchased ex-post individual settlement
years it developed into a was issued by government- agreements. Post 1998, a central
specialized real estate guaranteed bonds. KAMCO raised feature of these arrangements was
management company. Fast a total of USD 18 billion (won 21.5 a recourse arrangements or
forward to 1997, KAMCO was trillion) through the issuance of put/call option that allowed either
reorganized pursuant to the “Act bonds, from assessments on KAMCO to return (put option) or
on Efficient Management of Korea financial institutions in proportion the seller to request (call option)
Asset Management Corporation” to their holdings of NPLs and a the return of the loans if the initial
(KAMCO Act) as a public nonbank loan from KDB. It recycled USD 15 bulk purchase price and the
financial corporation, under the billion of recovered funds to eventual resolution price differed.
supervision of the Financial support its purchases. Maturity of Although, as the market matured
Supervisory Committee (FSC). The the bonds was within one-five and stabilized and with more
government owns 42.8 per cent of year, carried fixed and floating information available on price
KAMCO and the remaining is split coupons and yielded a market rate transactions, KAMCO abandoned
21Bad Banks in India | Conclusion
the put/ call option and the sellers efficient court ordered
were free to decide whether to program.
accept the price or not.
As of December 2002, KAMCO
Asset disposition: KAMCO’s overall resolved USD 54 billion of its USD
resolution strategy combined 92 billion in assets, at an average
disposition and medium-term debt recovery rate of 46.8 per cent of
workout and restructuring. face value.
KAMCO’s disposition strategy can
be divided into four broad
categories depending on the
nature and size of the NPL:
• Bulk loan resolution: Bulk
sales were attractive as they
resolved large number of
loans that resulted in
substantial cash flows and
attracted foreign investments
through an international
bidding process. KAMCO used
asset-bidding securitization
(ABS), involved the transfer of
NPLs to SPV which then issued
securities, payable from the
collection of all the NPLs in
public market. KAMCO issued
a total of 14 ABS transactions
for 18 per cent of the face
value of loan resolutions while
recovering 12 per cent of the
face value of the underlying
securities and 99 per cent of
their purchase price.
• Establishment of joint
venture(s): KAMCO sold large
portfolios to joint ventures
and equity partnerships. A
joint venture in which KAMCO
holds 50 per cent ownership
interest were established to
manage and dispose real
estate or to enhance recovery
values through corporate
restructuring.
• Foreclosure, public auctions
and individual loan sales:
KAMCO sold assets through
courts, by public auctions and
to directly to corporates.
• Loan workout or
restructuring: Restructuring
was either conducted through
an informal out-of-court
framework or under the less
22Bad Banks in India | Conclusion
E. Indonesia – IBRA The Banking Law Amendments and to the majority owner. In total
Background: Indonesia Implementing Regulations IBRA recovered Rp 19 trillion from
experienced the worst economic remained silent regarding sale proceeds and dividends from
crisis due to the Asian financial governance and transparency. its equity holdings.
crisis in mid-1997. The crash of Changes were introduced by the
rupiah exchange rate and rise in World Bank and IMF but were The asset management unit
interest rates caused defaulters ineffective. Over time IBRA managed NPLs with a book value
from the corporate sector which improved; operating results were of Rp 346.7 trillion (27 per cent of
resulted in numerous banks to reported to the legislative, 2000 GDP). IBRA’s NPL portfolio
experience liquidity shortage and financial results were audited in accounted to 90 per cent of NPLs
insolvency. In 1998, GDP accordance with generally in the system and were segmented
contracted by 14 per cent, inflation accepted accounting principles and by loan type with different
increased to 45 per cent and published, budget was revised and resolution strategies applied to
interest rates soar to 70 per cent. approved on a gross base and each category.
The authorities were forced to take IBRA’s goals on recovery were
extraordinary measures to provide publicly disclosed and tracked. In 2002, IBRA failed to accomplish
liquidity, capital and restructure its mandate and shifted its strategy
the banks under the newly created Funding: IBRA was funded by the to rapid asset disposition. The loan
Indonesian Bank Restructuring Indonesian budget. The bonds sales were conducted through a
Authority (IBRA). were not issued instead transparent, market-based process
government directly issued bonds with the floor price determined by
Establishment of IBRA: IBRA was to recapitalize the banking sector. an in-house assessment of each
created on January 26, 1998 for a Annual recovery targets for IBRA loan’s market value. Over the
period of five years as a bank were established whereby the period, IBRA sold 60 per cent of its
restructuring agency to administer proceeds were remitted directly to NPL portfolio and the average
the deposit guaranty and to the government to reduce the recovery rate was 22 per cent,
restructure banks. It was budget deficit. reflecting poor quality of loans and
established under the minister of the time spent before the sale.
finance; the chairman was Organizational issues: IBRA’s
appointed by the president and organizational structure was The shareholder settlements unit
other members were appointed by divided into three business lines: pursued former bank owners who
the central bank. In addition, it was banking restructuring, asset has misused liquidity support. A
agreed that upon dissolution the management and shareholder total of 44 bank owners deemed to
remaining assets belonged to the settlements. Each department violate the regulations of Bank
state. focused solely on its business Indonesia. The funds could be
excluding the other divisions, recovered if the former owner
IBRA’s role was expanded to which led to each area maintaining transferred assets of enough value
include; (i) managing the NPLs its own internal database and to IBRA. The other option was to
from banks that have been closed, operating systems resulting in appoint a representative on the
nationalized or jointly recapitalized inconsistency in data. The other board of the corporation, leaving
by government and their issue was IBRA recorded the loan the existing members with full
shareholders and (ii) negotiate and assets at gross book value rather access to and control over the
manage settlement agreements than market value resulting in assets. By 2004, when IBRA
with the controlling shareholders overestimation of realizable value. dissolved, it only had recovered
of the closed banks. The initial The public confidence dipped 22.4 per cent of the Rp 130.3
mandate lacked guidelines losses were observed in early sales trillion owned by former owners.
governing the division of rather than recoveries.
supervisory responsibilities Performance and winding up:
between Bank Indonesia and IBRA Asset disposition and Bank sales: IBRA was discounted as of
which led to confusion within the IBRA closed 54 banks, nationalized February 2004. Although it
public, banks and organizations. In 21 banks and held 6 jointly performed well as a bank
the end, Bank Indonesia recapitalized banks. Banks were resolution agency, it was
reassumed responsibility for mainly returned to private comparatively less successful with
supervision and IBRA was the ownership through transparent respect to maximizing recovering
agent. auction process with majority through loan restructuring and
stakes sold to the market or blocks shareholders settlements. Over
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