The gross non-performing assets of banks are expected to come down marginally to Rs 9.1 lakh crore by the end of 2019-20, according to a joint study by trade body Assocham and ratings agency Crisil Ltd. Indian banks' gross NPAs stood at Rs 9.4 lakh crore in 2018-19, the study said.
"There is a significant potential opportunity for stressed-asset investors, given around Rs 9.4 lakh crore NPAs in the banking system as on March 31, 2019. Of this, corporate segment, which has seen active interest from most investors, is estimated to account for 70 percent," the report titled Bolstering ARCs said.
According to the Assocham-Crisil report, large stressed borrowers have debt of Rs 5.4 lakh crore, which in itself is a huge playing field for investors.
Of the total, National Company Law Tribunal's List-1 and List-2 comprise around Rs 2.1 lakh crore and existing stock of NPAs comprise another Rs 2 lakh crore.
"Over and above this, assets of around Rs 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 study said.
Put together, power, infrastructure and steel sectors constitute almost half of Rs 4.1 lakh crore of stressed assets. The power sector accounts for the largest proportion, and resolution in this sector has not been significant.
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 the Insolvency and Bankruptcy Code (estimated at Rs 1 lakh crore as on March 31, 2019).
RBI's resolution framework on recognising bad loans and the IBC have paved the way for attracting investors into the stressed-assets space and helped speed up resolution, ironing out issues regarding legal aspects and resolution timelines will be critical to boost investor confidence, it said.
The report also said that with a higher cash share becoming a norm, asset reconstruction companies will need to focus more on resolutions and attracting co-investors.
Assets under management growth of ARCs are therefore, expected to be range-bound at 8-10 percent over the medium term, the report added.
Going forward, with increase in proportion cash deals, the discounts are expected to remain on the higher side.
To make way for newer acquisitions and also attract new and repeat investors, it is imperative for ARCs to quickly resolve the assets and redeem the security receipts.
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 percent from earlier level of 40 percent owing to quicker debt aggregation, acquisition of lower vintage of assets, positive changes in regulatory framework and improved credit discipline and support from promoters of a company under resolution," it said.
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