1. Gross NPA in Indian banks may rise to Rs 9.5 lakh crore by March, says ASSOCHAM-Crisil joint study

Gross NPA in Indian banks may rise to Rs 9.5 lakh crore by March, says ASSOCHAM-Crisil joint study

Gross non-performing assets (NPA) in Indian banks are expected to rise to Rs 9.5 lakh crore by March, from Rs 8 lakh crore in March last year, said a ASSOCHAM-Crisil joint study.

By: | New Delhi | Published: January 22, 2018 3:00 PM
NPA, Gross NPA, RBI, Reserve Bank of India, Assocham, Crisil, indian banks, banking finance, non performing assets The study also said that effective implementation of the Insolvency and Bankruptcy Code would be a remedy to the challenge of prolonged litigation and it can help improve the recovery rate of stressed assets’ industry further. (Reuters)

Gross non-performing assets (NPA) in Indian banks are expected to rise to Rs 9.5 lakh crore by March, from Rs 8 lakh crore in March last year, said a ASSOCHAM-Crisil joint study.

Stressed assets in March 2018 are expected to be at Rs 11.5 lakh crore, the report titled “ARCs headed for a structural shift,” said.

“High level of stressed assets in the banking system provides enormous opportunity size for asset reconstruction companies (ARCs) which are an important stakeholder in the NPA resolution process,” ASSOCHAM said in a statement quoting the study.

It, however, said that owing to capital constraints, growth of ARCs is expected to come down significantly.

“While growth is expected to fall to around 12 per cent until June 2019, however the AUM (assets under management) are expected to reach Rs 1 lakh crore, and that is fairly sizeable.”

The study added that with banks expected to make higher provisioning over and above the provisions made for stressed assets, they may sell the assets at lower discounts, thus increasing the capital requirement.

The study also said that effective implementation of the Insolvency and Bankruptcy Code would be a remedy to the challenge of prolonged litigation and it can help improve the recovery rate of stressed assets’ industry further.

Power, metal and construction sectors contribute the bulk of stressed assets. According to an analysis of 50 stressed assets (forming nearly 40 per cent of stressed assets in the system), sectors like metal, construction and power form nearly 30 per cent, 25 per cent and 15 per cent respectively, while other sectors together form the remaining 30 per cent.

The report stated that 2018 would see a structural shift in the stressed assets’ space as increased stringency in banks’ provisioning norms for investments in security receipts (SRs) is likely to result in more cash purchases.

“Fiscal 2018 marks beginning of third phase of ARCs which promises to change the landscape as new regulations and other changes kick-in.”

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  1. Sastry Vemoory
    Jan 29, 2018 at 6:35 pm
    (Contd from previous posting) When a debt becomes an NPA, the debtor who is unable to repay his/their debt, he/they should voluntarily dispose of their non-business assets (like houses, projects not covered by the finance raised through the debt in question) or, if that is not possible for valid reasons, their business assets (e.g., stock, receivables or even equipment) for liquidation of their NPA outstandings. If the debtor does not do so voluntarily, the Bank should stand empowered, as under SRAFESI without resort to court action (which consumes unconsionably long time), to seize and sell or hand over to a Receiver the debtor’s assets for adjustment of their NPA outstanding. If such provision in Law is available, the debtors will on their own square up their dues
    Reply
    1. Sastry Vemoory
      Jan 29, 2018 at 6:29 pm
      Banks are not entirely at fault for the NPA position they face. Even if their pre-sanction appraisal is lacking in flaws and their post-disbur t tracking/vigilance/due diligence is the best possible a debtor may commit default and the debt to become NPA. The default may be due to controllable and avoidable factors such as diversion of funds, mismanagement, the business plan being inherently faulty.It may also be due unforeseeable, uncontrollable or unavoidable factors like s being below expectations, emergence of new compe ion, changes in laws and rules etc. When a debt becomes an NPA, the debtor who is unable to repay his/their debt, he/they should voluntarily dispose of their non-business assets (like houses, projects not covered by the finance raised through the debt in question) or, if that is not possible for valid reasons, (contd. in next posting)
      Reply

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