"There is a significant potential opportunity for stressed-assets investors, given around ₹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," the report 'Bolstering ARCs' said.
It said large stressed borrowers have debt aggregating to ₹5.4 lakh crore, which is a huge playing field in itself for investors.
Of the total, National Company Law Tribunal (NCLT) list-1 and list-2 comprised around ₹2.1 lakh crore and existing stock of NPAs comprised another ₹2 lakh crore.
"Over and above this, assets of around ₹1.3 lakh crore are estimated to be under stress but have not been recognised as NPAs, these assets could potentially slip into NPAs over the near to medium term," the report said further.
Power, infrastructure and steel sectors together constitute about half of ₹4.1 lakh crore worth stressed assets. Power sector accounts for the largest proportion, and resolution in this sector has not been significant.
It said the revised stressed asset framework is expected to benefit stressed power sector assets that were operational and on the verge of being referred to insolvency proceedings under IBC (estimated at ₹1 lakh crore as on March 31, 2019).
RBI's resolution framework on recognising bad loans and the Insolvency and Bankruptcy Code (IBC) have paved the way for attracting investors into the stressed-assets space and helped speed up resolution, ironing out issues regarding legal aspects and resolution timelines will be critical to boost investor confidence, it said.
The report also said that with a higher cash share becoming a norm, asset reconstruction companies (ARCs) will need to focus more on resolutions and attracting co-investors.
Assets under management (AUM) growth of ARCs are therefore, expected to be range-bound at 8-10 per cent over the medium term, the report added.
Going forward, 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.
Assocham-Crisil study also highlighted that ARCs have learnt from past experiences and are implementing successful strategies to improve recovery rates.
"The recovery rate which is gross recovery to principal debt acquired is expected to improve to 44-48 per cent from earlier level of 40 per cent owing to quicker debt aggregation, acquisition of lower vintage of assets, positive changes in regulatory framework and improved credit discipline and support from promoters of a company under resolution," it said.
This story has been published from a wire agency feed without modifications to the text. Only the headline has been changed.
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