Loans worth ₹1.3 lakh crore are waiting to turn 'bad', says an industry report
- As much as ₹1.3 lakh crore worth stressed loans will turn into non-performing assets in the near to medium term
- The total NPA burden of the country will come down to ₹9.1 lakh crore by March 2020.
- The assets of ARCs or asset restructuring companies will grow by 8-10% in the medium term.
Indian banks are turning bigger and larger which will help them brace for bad times. And, these bad times are not far away. Stressed loans worth ₹1.3 lakh crore are not categorized so will turn into non-performing assets in the near to medium term, says a report by industry body Assocham.
The report called ‘Bolstering ARCs’ however believes that the total NPA burden of the country will come down to ₹9.1 lakh crore from ₹9.4 lakh crore, by March 2020.
“There is significant potential opportunity for stressed-assets investors, given around ₹9.4 lakh crore NPAs in the banking system. Of this, the corporate segment, which has seen active interest from most investors, is estimated to account for 70%,” the joint study with Crisil, noted.
Bad loans will turn good assets
These ‘bad’ loans will become assets for ARCs or asset restructuring companies, whose kitty will swell by 8-10% in the medium term.
The business of purchasing bad loans and affected companies has also turned capital intensive, which means ARCs will have to bring in more co-investors into the game.
“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,” the report said.
The promoters of bankrupt companies are also turning more disciplined and supportive and that is helping recover more money from stressed assets.
“The recovery rate which is gross recovery to principal debt acquired is expected to improve to 44-48% from earlier 40% owing to quicker debt aggregation, acquisition of lower vintage of assets, and positive changes in regulatory framework,” the report said.