The NPA can be reduced to Rs 9.1 rupees at the end of the current fiscal year: Assocham-Crisil study
MANGALURU: Gross non-productive assets (NPA) of the banking system of India may fall by Rs 9.1 lakh crore at the end of the current fiscal year (March 31, 2020), from Rs 9.4 lakh crore to March 31, 2019 , estimated a just concluded the joint study Assocham-Crisil.
There is an important potential opportunity for investors of stressed assets, given around Rs 9.4 lakh crore NPA in the banking system as of March 31, 2019. From this, it is estimated that the corporate segment, which has seen an active interest of the majority of investors, represents 70 percent, said a study entitled, Reinforcement of ARCs, conducted by the Associated Chambers of Commerce and Industry of India (Assocham) together with the global analysis company Crisil.
In addition, he said that the stressed stressed borrowers have a debt that accumulates at Rs 5.4 lakh crore, which is a huge playground in itself for investors. Of the total, list-1 and list-2 of the National Court of Corporate Law (NCLT) comprised about Rs 2.1 lakh crore and the existing NPA stock included other Rs 2 lakh crore.
In addition to this, it is estimated that assets of around Rs 1.3 lakh crore are under stress but have not been recognized as NPA, these assets could pass to NPA in the short and medium term.
The energy, infrastructure and steel sectors together constitute approximately half of the stressed assets worth Rs 4.1 lakh crore. The accounts of the electricity sector constitute the largest proportion, and the resolution in this sector has not been significant.
The revised stressed assets framework is expected to benefit the stressed assets of the electricity sector that were operational and about to be referred to insolvency proceedings under IBC (estimated at Rs 1 lakh crore on March 31, 2019).
While the resolution framework of the Reserve Bank of India (RBI) and the Bankruptcy and Insolvency Code (IBC) have paved the way to attract investors to the space of stressed assets and have helped accelerate the resolution, resolve Issues related to legal aspects and resolution deadlines will be critical to increase investor confidence, the report suggested.
He also said that, in particular, regulatory changes in recent years have aimed to put the skin of asset reconstruction companies (ARC) in the game and diversify the potential investor base for stressed assets.
With the rules for investments in ARC and security receipts (SR), even for foreign investors, and the ARC business model is becoming more capital intensive, the partnership model will be the way forward for ARC, given the higher capital requirement.
It could be through several routes, ranging from investment in ARC, SR to direct investments in stressed assets, said the ASSOCHAM-Crisil study.
The report also said that with greater cash participation becoming a norm, ARCs will need to focus more on resolutions and attract co-investors.
In the future, with an increase in the proportion of cash offers, discounts are expected to remain on the upper side. To make way for new acquisitions and also to attract new and repeated investors, it is imperative that the ARCs quickly resolve the assets and redeem the SRs.
Therefore, the growth of assets under management (AUM) of ARCs is expected to be limited to a range of 8-10 percent in the medium term, the report added.
He also said that the ARCs have learned from past experiences and are implementing successful strategies to improve recovery rates, the recovery rate, which is the gross recovery of the principal debt acquired, is expected to improve to 44-48 percent from levels previous 40 percent due to faster debt aggregation, acquisition of less senior assets, positive changes in the regulatory framework and improved credit discipline and support from the promoters of a company under resolution.