Financial Markets and the Economy - Intersections

Here's a quick reaction to yesterday's late evening FinMin announcements on the new stressed assets resolution plan. 1) For loans below INR 500cr, it largely seems a call to do more within the existing framework. What's new is the proposal that AIFs take over stressed loans beyond INR 500cr. 2) What's good about the AMC/ AIF proposal is that (i) it will take out large assets out of bank books - just as a bad bank would (ii) it will concentrate stressed asset ownership into one entity, and do away with the need to coordinate amongst multiple bankers - just as a bad bank would and (iii) if it works well, it could be the start of proper distressed debt trading in Indian markets 3) The issues to be addressed in the AMC/ AIF proposal are: (a) banks setting up an AMC that launches AIFs to buy banking assets - there is obvious potential for conflict of interest. (b) A related issue would be the transfer price of assets from banks to the AIF. If the AI...

The following article appeared on CNBCTV18.com and in Financial Chronicle on 02Jul18 https://www.cnbctv18.com/finance/the-five-rs-central-to-indian-bank-npas-230231.htm The Five R’s of Indian banking NPAs Let’s consider five aspects relating to bank non-performing assets (NPAs) – NPA recognition, bank recapitalization, NPA resolution, reforms going forward, and finally, the realpolitik surrounding this. Recognition of NPAs Since the RBI launched the Asset Quality Review (AQR) in 2015, Indian banks have had to progressively reveal the true extent of their NPAs. These went up from 4.6% of advances in fiscal year 2015 (FY15), to 7.8% in FY16, 9.6% in FY17, and 11.6% in FY18. The much-debated February 2018 RBI circular on resolution of stressed assets increased FY18 disclosures, and should help achieve full recognition in FY19. Some have sought dilution of the circular, arguing that the tight timelines in the new insolvency process could force ev...