21.7 C
New York
Friday, July 30, 2021

Distressed debt market likely to dry up with RBI recast plan

Must read

Stocks in focus: JK Laxmi Cement, MRPL and more

Business News>Markets>Stocks>News>Stocks in focus: JK Laxmi Cement, MRPL and more Check out the stocks that will be in focus during trade today based on...

Buy Nalco, target price Rs 100: Yes Securities

Yes Securities has buy call on National Aluminium Company Ltd. with a target price of Rs 100. The current market price of National Aluminium...

Gold set for biggest weekly gain in over 2 months on dovish Fed

Gold prices held near a two-week high on Friday, and were set for their biggest weekly gain in more than two months, on renewed...

Wall St gains with upbeat earnings and forecasts; Facebook falls 4%

NEW YORK: US stocks ended higher on Thursday, boosted by robust U.S. earnings and forecasts, while data showed the economy recovered to pre-pandemic levels...

MUMBAI: The allure of India’s $260-billion distressed debt market is dimming with the Kamath Committee loan recommendations coming into play, as asset reconstruction companies (ARC) will likely face hurdles in executing transactions.

The market for distressed assets may not revive for at least six months as bankers and investors grapple with the fallout of the plan.

The distressed asset market, which witnessed deals estimated in the range of Rs 60,000-65,000 crore in FY20, is almost non-existent this year so far, said people involved in distressed asset sale. This fiscal year, there have been negligible sales.

“The recent restructuring scheme may lead to assets not becoming NPAs,” said Vishal Kampani – Managing Director, JM Financial Group that also runs an asset reconstruction company. “We’ll have to watch this space over the next 12 months. There will be a slowdown. No one would want to become non-performing assets. One will work with the banks to restructure.”

After the global financial crisis, assets were restructured. Some couldn’t survive and consequently the ARC opportunity started taking shape in 2013.

“Next few months this distressed market may see little activity amid a pandemic economy,” said Rajesh N Gupta, managing partner at SNG & Partners. “However, there could be a plethora of opportunities for investors at a later stage as businesses have already affected even before the pandemic and are getting severely impacted due to Covid-19. The valuations will be realistic and foreign funds are likely to be aggressive, he said.

“Post-Covid, the distressed debt market has witnessed a significant slowdown,” said Hari Hara Mishra, Director, UV ARC Ltd. “However, after last date of invocation of resolution under CoVID framework by December 31st, part of the pool of assets not covered therein and other ineligible assets under the framework may find their way to the distressed debt market. Recovery from other mechanisms is time consuming and continuance of NPAs in banks’ books will put pressure on balance sheets of banks.”

S&P Global Ratings predicts that Indian banks’ NPA-to-loan book ratio could spike by around 50% in the current fiscal year.

The experience on restructuring has not been a pleasant one; with peak standard restructured assets at 6% in FY15. Most of that slipped to non-performing categories, show a report by Indian Ratings.

“A time-bound recast with well defined entrybarrier can help the overall economy. The lack of such a mechanism may onlybring troubles. On a longer term, this will result in a spike in NPAs and deteriorate the low resolution incidencein the ARC industry,” said Shiju P Veetil, Sr Partner, IndiaLaw LLP.

- Advertisement -

Latest article

Stocks in focus: JK Laxmi Cement, MRPL and more

Business News>Markets>Stocks>News>Stocks in focus: JK Laxmi Cement, MRPL and more Check out the stocks that will be in focus during trade today based on...

Buy Nalco, target price Rs 100: Yes Securities

Yes Securities has buy call on National Aluminium Company Ltd. with a target price of Rs 100. The current market price of National Aluminium...

Gold set for biggest weekly gain in over 2 months on dovish Fed

Gold prices held near a two-week high on Friday, and were set for their biggest weekly gain in more than two months, on renewed...

Wall St gains with upbeat earnings and forecasts; Facebook falls 4%

NEW YORK: US stocks ended higher on Thursday, boosted by robust U.S. earnings and forecasts, while data showed the economy recovered to pre-pandemic levels...

Buy State Bank of India, target price Rs 465: Yes Securities

Yes Securities has buy call on State Bank of India with a target price of Rs 465. The current market price of State Bank...