While India's financial stability was on a defined trajectory, COVID-19 disrupted everything and exacerbated the trouble with stressed assets. Experts have opined that the second wave of COVID-19 would probably worsen stressed assets in the banking system. This has been seen as a case of one step forward, two steps back.
Since 2015, the Indian banking system has been acquiescing crack after crack under the burden of NPAs (non-performing assets). To combat this, mechanisms like the Insolvency and Bankruptcy Code was implemented to deal with the blowback ending up with the pandemic causing the situation to go back to square one. The RBI alleges that NPAs could go up to 13.5% by the end of this year and with an unsupportive macroeconomic framework, may end up going to 14.8% as well. This is going to continue to weaken India's financial stability with low credit growth and can see it happening.
Furthermore, India has a history of bad debt and a pattern of not being able to size up the issues at hand. One solution is to launch a bad bank with the goal of housing bad loans, but experts believe it would be a long time before it starts to be effective and this can only truly facilitate change if the assets get resolved and aren't just kept stagnant like in a storage facility. How do we better resolutions and accelerate digital infrastructure to combat this? Is it feasible? Will the cracks deepen? The gravity of the situation at hand and the rise in bad banks has reoriented the discourse surrounding stressed assets.
We need to ascertain the strategies and what structures one can employ as buyers, as well as assess the complexities and arising opportunities there would be in the stressed asset space. All of this and much more from bankers, policymakers, investors and other key stakeholders at India’s most compelling thought leadership forum at the VCCircle Stressed Assets Investment Summit 2021 on August 13, 2021 on a virtual platform.