The gross non-performing assets (NPAs) of Indian banking system may shrink to Rs 9.1 lakh crore by the end of current fiscal (March 31, 2020), from Rs 9.4 lakh crore as on March 31, 2019, says a latest study.
"There is significant potential opportunity for stressed-assets investors, given around Rs 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," according to the study titled, "Bolstering ARCs", conducted by The Associated Chambers of Commerce and Industry of India (ASSOCHAM) jointly with rating agency CRISIL.
The large stressed assets in the corporate sector were around Rs 5.4 lakh crore, which is a huge playing field in itself for investors. Out of it, National Company Law Tribunal (NCLT) list-1 and list-2 comprised around Rs 2.1 lakh crore and existing stock of NPAs comprised another Rs 2 lakh crore.
As per the report, the banks' gross NPAs are expected to decline by 350 basis points (bps) to around 8% by March 2020, compared with the peak of 11.5% in March 2018 and 9.3% in March 2019.
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"The decline will be driven by a slowdown in NPA accretion and stepped-up recoveries from existing NPA accounts. Resolution of large NPA accounts, especially under the IBC, will help, assuming the bulk of the cases pending with the National Company Law Tribunal (NCLT) will be resolved. A pick-up in credit growth will be a booster, too," the report said.
While an enabling regulatory framework has paved the way for attracting investors in the stressed-assets space, regulations introduced in recent years - including RBI's revised resolution framework and the Insolvency and Bankruptcy Code (IBC) - augur well for resolution of stressed assets.
The report added that regulatory changes in recent years have been aimed at putting asset reconstruction companies' (ARCs) skin in the game and diversifying the potential investor base for stressed assets.
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"Given the higher capital requirement, the partnership model will be the way forward for ARCs. It could be via various routes, ranging from investment in ARCs, investments in SRs to direct investments in stressed assets."
The report noted that there is a sizable opportunity in the stressed assets space for investors, with IBC being a game changer. The IBC ecosystem is developing at a fast pace, but adherence to timelines remains a challenge.
Edited by Chitranjan Kumar