NEW DELHI: The committee on bad-loan resolution led by Punjab National Bank chairman Sunil Mehta has suggested a live auction mechanism to help banks free up security receipts worth Rs 90,000 crore in their investment books that can used to revive credit growth ET has reviewed a copy of the recommendations that seek to achieve this through an asset trading platform (ATP) recommended under Project Sashakt , the broad contours of which had been announced on July 2. The above details weren’t made public at the time.“This mechanism (ATP) can be used by banks to sell the security receipts (SRs) issued to them by asset reconstruction companies (ARCs), to third parties and recover value in advance, thereby freeing up additional funds for lending,” the committee noted in its recommendations. The committee estimates that banks currently hold Rs 90,000 crore of SRs.The Stock Exchange Board of India has already approved norms for listing SRs issued by ARCs. ARCs currently need to pay lenders at least 15% in cash for taking over an asset. The balance can be paid as security receipts (SRs) redeemed over five to eight years as the bad loan is resolved.The Mehta committee report also noted that the proposed online platform can be used to hold live auctions of distressed loans to make the process transparent, thereby mitigating the risk of future accusations of wrongdoing by the investigative agencies against bankers. “The live auction mechanism would also be suitable for the Indian public sector banks as otherwise they may be reluctant to sell any loan for a haircut due to risk of charges of impropriety,” the report stated.A senior bank executive aware of the report’s contents said that an online ATP can possibly help as, under the current mechanism, differences over valuation between banks and ARCs often lead to cancellation of the sale of bad loans.The Mehta committee report said an online trading platform for loans should be set up. This can also be used to sell both performing and non-performing loans to transfer risk. The platform is expected to help banks trade loans among themselves and with select non-banking participants, it noted. “Such a platform can help banks better manage their balance sheets and capital as well,” said the bank executive cited above, adding that banks are in discussions on the matter. Another bank executive said this will require standardisation of documentation. “The standard documentation will be required for trading, settlement and valuation procedures,” he said adding that this will help both buyers and sellers in pricing the loans.The report further noted that another benefit of such a platform is the potential saving in legal fees. “A lengthy legal process for resolution or liquidation can add significant legal and admin costs, which are eventually borne by the creditors. In a live bidding platform, these costs can also be significantly minimised,” it said.Project Sashakt involves state-run banks setting up an asset management company (AMC) for the resolution of loans above Rs 500 crore as part of efforts to restore lenders to health.The initiative will be run by the banks without government involvement, will be in harmony with all current laws and will function outside of the Insolvency and Bankruptcy Code (IBC) process.