Blockchain Exchange For Non-Performing Assets Planned By State Bank Of India
State Bank of India (SBI), the country’s largest public sector bank, is creating a blockchain exchange for non-performing assets (NPA).
The project is part of the Bankchain Alliance, a community of banks for exploring, building and implementing blockchain solutions. The platform will be built on a blockchain called Primechain-ASSET, which comprises a smart contract-powered auction system, built-in regulatory reporting and other features. It also offers a repository for documents related to the assets.
SBI said the platform will facilitate transparent price discovery of NPAs. It will allow banks to divide up stressed assets and sell them to other banks, asset reconstruction companies or funds. The platform is expected to go live in the next 3-4 months.
“This [project] will help banks obtain more data and market-driven price discovery of stressed assets and will automate and bring a more orchestrated effort for sale of Non-Performing Assets (NPAs),” said Sudin Baraokar, innovation adviser at State Bank of India. “By leveraging blockchain, we can then continue to develop more structured products once we have a Loan Asset Exchange system in place.”
NPAs have become a challenge for the global banking sector. In India, banks are said to have to battle with NPAs worth $210 billion, of which $30 billion resides with SBI alone. Therefore, there is a need for a data-driven price discovery mechanism for NPAs.
Last month, the Reserve Bank of India, the country’s central bank, issued a revised framework for banks, allowing early identification and reporting of stressed assets. Under the revised farme work, banks will be required to identify incipient stress in loan accounts, immediately on default, by classifying stressed assets as special mention accounts (SMA) depending upon the period of default.
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