The non-performing assets (NPAs) of public sector banks in India will cross Rs.9.5 lakh crore by the end of March 2018, according to a joint study by Assocham and Crisil. This represents a significant rise from Rs.8 lakh crore by the end of March 2017. While banks are stressed with huge amounts of NPAs, this scenario provides a great opportunity for asset reconstruction companies (ARCs) in the bankruptcy resolution process.
This estimate about NPAs is published in a study titled ‘ARCs headed for a structural shift’. The study stated that ARCs are one of the major stakeholders in the NPA resolution process. While the opportunities are great for ARCs, the study also noted that the growth of these companies are expected to come down mainly because of capital constraints.
Since banks have already made higher provisions for stressed assets, they are expected to sell the assets at a lower discount rate. Hence, the capital requirement of ARCs are expected to increase in the upcoming days. The study estimates that the growth of ARCs are expected to fall by about 12% till June 2019. Despite this setback, the assets under management are expected to touch about Rs.1 lakh crore for these companies.
According to the study, the year 2018 will witness a major structural shift when it comes to stressed assets. For investment in security receipts, banks are expected to follow stringent provisioning norms. The study also noted that effective implementation of the Insolvency and Bankruptcy Code will minimize the need for litigation in the asset recovery process.
The issue of NPAs has been looming over public sector banks for a long time. While responding to a question in the parliament in December 2017, Shiv Pratap Shukla, minister of state for Finance, stated that NPAs have touched Rs.8.5 lakh crore. With the drastic increase in NPAs, many banks have already initiated debt resolution proceedings against major corporate defaulters in the country.
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