NPAs worth only Rs 12K-14K crore may be sold to ARCs
Updated: Jun 10, 2015 02:30:07pm
New Delhi, Jun 10 (KNN) Non-performing assets (NPAs) worth only Rs 12000-Rs 14000 crore may be sold to asset reconstruction companies (ARCs) for fiscal 2016, said a joint-study by ASSOCHAM-CRISIL.
According to the study titled ‘ARCs -The new normal: Growth tempered, recovery in the crosshairs,’ NPAs of Indian banks will edge up in fiscal 2016 by 20 basis points to 4.5 per cent of advances, however only a fifth of the incremental NPAs is likely to be sold to ARCs.
The study noted that bad loans are seen rising mainly because of withdrawal of regulatory forbearance on restructuring and high slippages from restructured assets, as much as 40 per cent of assets restructured between fiscals 2011-14 have degenerated to NPAs.
Tougher environment has turned ARCs cautious about quality and valuation of assets they acquire which has slowed down growth in assets under management (AUM) to 30 per cent in fiscal 2015 after a four-fold jump in fiscal 2014, it said.
Capital constraints, expectation mismatch on valuations, low recovery rates and longer resolution timeframes are certain reasons for inadequate absorption capacity of ARCs.
The study highlighted that it is important for ARCs to innovate through models like consortium bidding to acquire larger assets and share risks considering that access to capital remains critical.
“Any structural support such as access to capital market or relaxation of 49 per cent sponsor contribution would ease capital constraints,” the study added.
It suggested that tapping new players like private equity and distressed-asset funds could provide bridge loans or working capital funding to distressed assets which is critical to revival operations and value creation.
Though ARCs have successfully reconstructed several large accounts and demonstrated ability to recover monies through asset sales, but recovery levels have not been up to potential as cumulative redemption ratio of SRs in 10 years to June 30, 2013 stood at 53 per cent.
The ASSOCHAM-CRISIL study hopes for better recovery prospects driven by proactive regulations and positive steps being taken by the industry. “These changes will have a positive impact on asset-value unlocking process in the long term and provide a much-needed fillip to overall growth of the industry.” (KNN Bureau)
According to the study titled ‘ARCs -The new normal: Growth tempered, recovery in the crosshairs,’ NPAs of Indian banks will edge up in fiscal 2016 by 20 basis points to 4.5 per cent of advances, however only a fifth of the incremental NPAs is likely to be sold to ARCs.
The study noted that bad loans are seen rising mainly because of withdrawal of regulatory forbearance on restructuring and high slippages from restructured assets, as much as 40 per cent of assets restructured between fiscals 2011-14 have degenerated to NPAs.
Tougher environment has turned ARCs cautious about quality and valuation of assets they acquire which has slowed down growth in assets under management (AUM) to 30 per cent in fiscal 2015 after a four-fold jump in fiscal 2014, it said.
Capital constraints, expectation mismatch on valuations, low recovery rates and longer resolution timeframes are certain reasons for inadequate absorption capacity of ARCs.
The study highlighted that it is important for ARCs to innovate through models like consortium bidding to acquire larger assets and share risks considering that access to capital remains critical.
“Any structural support such as access to capital market or relaxation of 49 per cent sponsor contribution would ease capital constraints,” the study added.
It suggested that tapping new players like private equity and distressed-asset funds could provide bridge loans or working capital funding to distressed assets which is critical to revival operations and value creation.
Though ARCs have successfully reconstructed several large accounts and demonstrated ability to recover monies through asset sales, but recovery levels have not been up to potential as cumulative redemption ratio of SRs in 10 years to June 30, 2013 stood at 53 per cent.
The ASSOCHAM-CRISIL study hopes for better recovery prospects driven by proactive regulations and positive steps being taken by the industry. “These changes will have a positive impact on asset-value unlocking process in the long term and provide a much-needed fillip to overall growth of the industry.” (KNN Bureau)
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