Someone’s trash is a treasure for someone else.
Indian Banks are staring at
staggering NPA of Rs. 3.7 Lac Crore as on June 2014. With the Banking industry
is in shock and awe, one can see professional opportunities even in this
scenario
With the mind boggling size of
NPAs that the Banking system has in its kitty, the work of curing the defect
has garnered immense importance. I Will explain how and the opportunities for
Professional Chartered Accountants lying there in.
To understand this let us quickly
understand the process of identification and disposal of NPAs followed by
Banks.
1.
Identify an asset as stressed
2.
Explore options for recovery plan like
A. Restructuring
of debt
B. Change
of management
C. Sale
of assets
D. Transfer
to ARCs
Much has been discussed and
written about the first option of restructuring of Debt. Many of my
professional colleagues might have been actively working in this area.
However, the other 3 options I
believe, have gained importance as restructuring tool has not been that
effective. Let us discuss the same:
Change of Management: once an asset has
been classified as NPA/stressed, the bank has one difficult way of resolution
in the form of change of management. Please remember that banks can, with the
clause in the loan documents can evoke this option in case of event of default
(EoD).
The option is
difficult as generally the existing management may not co-operate and try to
create obstacles. However, in the toughest situations for the borrower; this
could be one of the wisest options and the borrower may get a breathing time to
recover from the losses or look for options. “Change of Management” with
consent of existing borrower is the best possible option for a bank which may
ensure minimum losses to banks and somewhat lesser pain to existing borrower.
Though, this decision could be situation specific.
Sale of assets:
When an asset turns
bad / stressed, the bank may explore the option to sale assets lying as
security in the form of a running unit or just the property/plant &
machinery.
This process is
time consuming as one will have to follow SARFAESI Act, 2002 which may lead to
litigations.
Transfer of Assets to Asset Reconstruction
Companies (ARCs):
With the
provisions of SARFAESI Act, 2002 Banks can also transfer the stressed assets to
ARCs which are specialized to handle and manage such assets. ARCs derive their
income from management fees and share in recovery proceeds. With the recent RBI
guidelines with 15% upfront contribution by ARCs to transfer an asset instead
of 5% as mandated earlier and earning rewards on resolution of Non Performing
Loans, only serious ARC players would exist in the business and the focus would
be more on resolution of asset than just being a trustee of stressed assets for
banks and earn management fees.
Professional
Opportunities:
- Advise client if it is the existing borrower to
explore option of Settlement, Change of Management with mutual consent. - Feasibility advisory to a prospective borrower.
- An asset might have turned bad for various
reasons for one person but other person may find value in the same. As a
professional, one can explore this opportunity to find suitable takers for
various assets lying as security with Banks/ARCs in the form of a property or a
running unit. - One can also explore opportunities for detailed
due diligence, feasibility study for its clients which are prospective buyers. - An opportunity also exists to suggest better
assets out of the bad debts which one may be locally aware of to ARCs post due
diligence for remuneration.
For any further details please contact CA Atul Rajwadkar #
91-9890426336.
