ARCs to buy NPAs worth Rs 14,000 cr in FY16: CRISIL

Will grow slower at 11% (net of redemption) in fiscal

Given the low systemic absorption capability, asset recostruction companies (ARCs) will acquire non-performing assets (NPAs) worth only Rs 12,000-14,000 crore in 2015-16, according to a CRISIL-Assocham study.

The capital constraints, expectation mismatch on valuations, low recovery rates and longer resolution timeframes are certain reasons for inadequate absorption capacity of ARCs, the study noted.

The study, ‘ARCs-The new normal: Growth tempered, recovery in the crosshairs’, says it is imperative for ARCs to innovate through models like consortium bidding to acquire larger assets and share risks considering that access to capital remains critical.

“Though gross NPAs of Indian banks will edge up in fiscal 2016 by 20 basis points to 4.5 per cent of advances i.e. by Rs 60,000 crore to Rs 4 lakh crore, however only a fifth of the incremental NPAs is likely to be sold to ARCs,” it said.  

The bad loans are seen rising mainly because of withdrawal of regulatory forbearance on restructuring and high slippages from restructured assets, as much as 40 per cent of assets restructured between financial years 2011-14 have degenerated to NPAs, the study noted.

Assets under management (AUM) of ARCs will grow slower at 11 per cent (net of redemption) in FY16. The fresh issuances of security receipts (SRs) will grow around 18 per cent, as they grapple with the new guidelines.

AUM of ARCs will taper to 11 per cent in FY16 compared with 30 per cent in FY15 which came atop a four-fold increase in FY14.

The tougher environment has turned ARCs cautious about quality and valuation of assets they acquire which has slowed down growth in AUM to 30 per cent in FY15 after a four-fold jump in FY14.