ARCs' Recovery Rate to Surge for Second Year: Report
By Rediff Money Desk, Mumbai Jan 30, 2025 16:40
India's asset reconstruction companies (ARCs) are set to see a significant jump in recovery rates for the second consecutive year, fueled by improved performance in infrastructure sectors and other factors. Read more about the positive outlook for ARCs.
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Mumbai, Jan 30 (PTI) The cumulative recovery rate of security receipts for asset reconstruction companies (ARCs) is set to jump for the second straight year on the back of better show in infrastructure sector and other factors, a report said on Thursday.
The cumulative recovery rate of security receipts (SRs) is likely to jump by up to 15 percentage points per annum, touching 75-80 per cent by FY26, the report by domestic rating agency Crisil said.
It attributed the improvement to healthy performance of stressed assets in key infrastructure sectors like real estate, thermal power and roads; higher share of retail and low vintage assets; and lower growth in new acquisitions in comparison to incremental recoveries.
Improving performance of stressed assets in these infrastructure sectors and the deterrence effect of the Insolvency and Bankruptcy Code (IBC) are impelling debt restructuring, which is emerging as a most-preferred resolution strategy and a win-win for both promoters of the stressed assets and ARCs, it said.
The rating agency said it analysed Rs 38,000 crore worth of security receipts to arrive at the estimates.
Next fiscal, out of an expected recovery of Rs 12,000 crore for Crisil-rated SRs, about half will be from stressed assets in the real estate, thermal power and roads sectors as against 34 per cent in FY25, it said.
"Three factors responsible for the rising ARC cash flows have converged in the past 2-3 fiscal years," its senior director Mohit Makhija said.
Makhija elaborated that stressed residential real estate projects have turned viable as property prices rose and inventories declined in the top six cities, while thermal power plants have seen demand growing amid adequate coal availability and timely payment by discoms.
Additionally, inflation-linked increases in toll and timely annuity payments by the National Highways Authority of India are aiding recoveries for stressed road assets, he said.
Apart from this, increasing acquisition of retail loan portfolios has also been supportive with the cumulative ARC recoveries for these assets projected at 60-65 per cent next fiscal as against 55-60 per cent this fiscal due to faster churn of retail loans with lower redemption time of 2.5-4.0 years, as against 5-6 years for corporate assets, the agency said.
The regulatory amendment allowing ARCs to acquire Special Mention Accounts (SMAs) has been a tailwind for ARCs, it said, acknowledging that the gross non-performing assets of the banking industry are at a decadal low of less than 3 per cent.
The agency said SMAs contributed 22 per cent of new acquisitions in the first half of this fiscal as against 4 per cent last fiscal among the SRs rated by it.
The cumulative recovery rate of security receipts (SRs) is likely to jump by up to 15 percentage points per annum, touching 75-80 per cent by FY26, the report by domestic rating agency Crisil said.
It attributed the improvement to healthy performance of stressed assets in key infrastructure sectors like real estate, thermal power and roads; higher share of retail and low vintage assets; and lower growth in new acquisitions in comparison to incremental recoveries.
Improving performance of stressed assets in these infrastructure sectors and the deterrence effect of the Insolvency and Bankruptcy Code (IBC) are impelling debt restructuring, which is emerging as a most-preferred resolution strategy and a win-win for both promoters of the stressed assets and ARCs, it said.
The rating agency said it analysed Rs 38,000 crore worth of security receipts to arrive at the estimates.
Next fiscal, out of an expected recovery of Rs 12,000 crore for Crisil-rated SRs, about half will be from stressed assets in the real estate, thermal power and roads sectors as against 34 per cent in FY25, it said.
"Three factors responsible for the rising ARC cash flows have converged in the past 2-3 fiscal years," its senior director Mohit Makhija said.
Makhija elaborated that stressed residential real estate projects have turned viable as property prices rose and inventories declined in the top six cities, while thermal power plants have seen demand growing amid adequate coal availability and timely payment by discoms.
Additionally, inflation-linked increases in toll and timely annuity payments by the National Highways Authority of India are aiding recoveries for stressed road assets, he said.
Apart from this, increasing acquisition of retail loan portfolios has also been supportive with the cumulative ARC recoveries for these assets projected at 60-65 per cent next fiscal as against 55-60 per cent this fiscal due to faster churn of retail loans with lower redemption time of 2.5-4.0 years, as against 5-6 years for corporate assets, the agency said.
The regulatory amendment allowing ARCs to acquire Special Mention Accounts (SMAs) has been a tailwind for ARCs, it said, acknowledging that the gross non-performing assets of the banking industry are at a decadal low of less than 3 per cent.
The agency said SMAs contributed 22 per cent of new acquisitions in the first half of this fiscal as against 4 per cent last fiscal among the SRs rated by it.
Source: PTI
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