Assets under management may reach Rs 1 lakh crore by June 2019
GN Bureau | January 27, 2018
Gross NPAs are expected to rise from Rs 8 lakh crore in March 2017 to Rs 9.5 lakh crore by March 2018, which is about 10.5 percent of total advances, while stressed assets are expected to be at Rs 11.5 lakh crore, according to a joint study by ASSOCHAM and Crisil.
“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,” said the joint report ‘ARCs headed for a structural shift’.
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 percent until June 2019, however the AUM (assets under management) are expected to reach Rs one 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 report stated that as existing capital base of ARCs will not support in absorbing stressed assets available in the market, they are expected to be a part of the multi-platform business model with co-investors/large funds to bring in capital and stay relevant.
Expecting recovery prospects to improve with these structural changes, the ASSOCHAM-Crisil report said, “The recovery rate, which is a good indicator of the effectiveness of ARCs is expected to rise from 38 percent earlier to about 44-48 percent.”
“An improvement in the recovery rate and reduction in timeline for resolution will increase investor confidence in the Indian bond market,” it added.
It noted that quicker debt aggregation, acquisition of assets with low vintage, and support from promoters have driven improvement in recovery.
Noting that ARCs have been active in acquiring companies in metal and construction sectors which constitute a small portion of overall tapped NPAs in the system, the ASSOCHAM-Crisil study suggested that to tap opportunities, ARCs are required to look at large assets that require large capital commitments in sectors such as power.
Power, metal and construction sectors contribute the bulk of stressed assets. According to an analysis of 50 stressed assets, sectors like metal, construction and power form nearly 30 per cent, 25 percent and 15 percent respectively, while other sectors together form the remaining 30 percent.
The study also said that effective implementation of the Insolvency and Bankruptcy Code (IBC) would be a remedy to the challenge of prolonged litigation and it can help improve the recovery rate of stressed assets’ industry further.
“A strong bankruptcy code can strengthen the creditor rights and can lead to a deeper bond market.”
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 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.”
While the first phase between fiscals 2003-2014 saw setting up of many ARCs along with a rise in their AUM owing to surging NPAs and low levels of required investment, the second phase between fiscals 2014 and 2017 saw key regulatory change in terms of increase in minimum investment required by ARCs for asset acquisition which increased the capital requirement.
Abright yellow van with figures of children playing with a whirligig, a Newton’s cradle, a magnetic compass rolls into the Government Higher Primary School in Kittaganahalli, on the outskirts of Bengaluru. Students in the playground leave what they are doing and mill about it in excitement. For they
Not many children dream of starting an idyllic school of their own when they grow up. But Ramji Raghavan, founder of the Agastya International Foundation – which fosters the creative learning of science in stude
While the entire nation is agog with political grapevine, political parties are weighing on all options to lure voters by touching upon issues that impact their lives. Several parties, including the BJP and the Congress have released their manifestos while many are about to join the bandwagon. The
Urmila Matondkar joined the Congress party and within just two months into politics, the actor is already surrounded by controversies – from being accused of making anti-Hindu comments to inappropriate poll campaigning. Fielded against BJP’s Gopal Shetty in the Mumbai North constituency, Ma
Dressed in white shirt and pants, three time Bhartiya Janta Party (BJP) corporator Manoj Kotak is now contesting from Mumbai north-east constituency. Kotak, representing BJP in the BMC, is ready to rally around Ward 125 in Ghatkopar east area. It’s about 7:30 pm on a hot April e
Sunil Bhatt, a Gujarat-based professional, has completed what is possibly the first PhD thesis on prime minister Narendra Modi. The thesis, titled ‘Leadership, Governance and Development: A case study of Shri Narendra Modi’, has been accepted at the Veer Narmad South Gujarat Universit