India Inc, which was already facing a huge challenge due to an economic slowdown, is now staring at an even deeper abyss as gross domestic product is likely to shrink in the current fiscal year because of the lockdown’s impact.
While the government has put in place circuit breakers to calm the financial system with a moratorium on loan payments and a clamp on fresh insolvency filings for a year, lenders believe it will at best delay the inevitable storm. Lenders are likely to take a big hit as companies struggle to remain above water due to the demand shock from lockdown.
Some analysts estimate the overall impact could see banks and non-banking financial companies (NBFCs) adding as much as Rs 10 trillion, or $130 billion, in additional gross non-performing assets (NPAs). This would erode the improvement that was noticed last year with a decline in the NPA ratio.
Almost four years after the Insolvency and Bankruptcy Code – the country’s bankruptcy law – came into effect, close to 4,000 cases have been admitted into insolvency courts. More than half of these cases remain unresolved. A quarter of the total have ended up in liquidation, and resolution has been achieved in only 6% cases.
While regulatory challenges remain and the suspension in fresh filings will impact deal activity, the stressed assets segment continues to be lucrative – not just for strategic buyers looking at attractive assets that have been shrouded under the cloud of debt, but also for financial investors. In particular, stressed assets funds are warming up to the new regulatory regime and see lot of opportunities to turnaround good quality assets.
To assess the progress of the bankruptcy law, structures and strategies being adopted by buyers as well as emerging challenges, VCCircle is organising the fourth edition of its Stressed Assets Investment Summit on August 6, 2020 on a virtual platform.