Money & Banking

NPAs may dip a tad to ₹9-lakh cr by FY20-end: Report

PTI New Delhi | Updated on September 04, 2019 Published on September 03, 2019

Gross bad loans of banks are expected to come down marginally to ₹9.1-lakh crore by the end of the current financial year, according to a report. Gross non-performing assets (NPAs) of Indian banks stood at ₹9.4-lakh crore as on March 31, 2019, said a joint study by Assocham-Crisil.

“There is a significant potential opportunity for stressed-assets investors, given around ₹9.4-lakh crore NPAs in the banking system as on March 31, 2019. Of this, the corporate segment, which has seen active interest from most investors, is estimated to account for 70 per cent,” said the report titled ‘Bolstering ARCs’.

It said large stressed borrowers have debt aggregating to ₹5.4-lakh crore, which is a huge playing field in itself for investors.

Of the total, National Company Law Tribunal (NCLT) list 1 and list 2 comprised around ₹2.1-lakh crore, and the existing stock of NPAs comprised another ₹2-lakh crore.

“Over and above this, assets of around ₹1.3-lakh crore are estimated to be under stress, but have not been recognised as NPAs; these assets could potentially slip into NPAs over the near to medium term,” the report said further.

Power, infrastructure and steel sectors together constitute about half of the ₹4.1-lakh crore of stressed assets. The power sector accounts for the largest proportion, and resolution in this sector has not been significant.

IBC to the rescue

It said the revised stressed asset framework is expected to benefit stressed power sector assets that were operational and on the verge of being referred to insolvency proceedings under IBC (estimated at ₹1-lakh crore as on March 31, 2019).

The RBI’s resolution framework on recognising bad loans and the Insolvency and Bankruptcy Code (IBC) have paved the way for attracting investors into the stressed-assets space and helped speed up resolution, ironing out issues regarding legal aspects, it said.

The report also said that with a higher cash-share becoming a norm, asset reconstruction companies (ARCs) will need to focus more on resolutions and attracting co-investors.

Growth in assets under management (AUM) of ARCs are, therefore, expected to be range-bound at 8-10 per cent over the medium term, the report added. Going forward, with increase in proportion of cash deals, discounts are expected to remain on the higher side.

To make way for newer acquisitions and to attract new and repeat investors, it is imperative for ARCs to quickly resolve the assets and redeem the security receipts.

Recovery strategy

The Assocham-Crisil study also highlighted that ARCs have learnt from past experiences and are implementing successful strategies to improve recovery rates.

“The recovery rate, which is gross recovery to principal debt acquired, is expected to improve to 44-48 per cent from earlier level of 40 per cent, owing to quicker debt aggregation, acquisition of lower vintage of assets, positive changes in regulatory framework, improved credit discipline, and support from promoters of a company under resolution,” it said.

Published on September 03, 2019
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