Banks would need to write off their losses between 40 and 70 per cent in at least 240 companies, which are under heavy debt mostly in steel, construction, power, textiles and infrastructure, a study said.The study, jointly conducted by Associated Chambers of Commerce and Industry of India (Assocham) and India Ratings and Research (Ind-Ra), also suggested asset reconstruction to cut their losses with the help of revamped asset reconstruction companies (ARCs) sector. This will help banks achieve a sustainable level of bank debts, going down as non-performing assets (NPAs), said the study, which will be released at an event here on Friday, according to an Assochamstatement.
The study noted that the gross non-performing advances rose sharply to 7.6 per cent of gross advances in March 2016 from 5.1 per cent in September 2015."Asset reconstruction companies need re-positioning; the issue of bad debt amounting to Rs 6 trillion would need ARCs to re-orient themselves, if they are to facilitate the resolution process,” the study said, adding that the current capital position of ARCs can at most take care of 10 per cent of the bad debt in the Indian banking system. “The number of ARCs has been inadequate vis-a-vis the need. However, that scenario is about to change. In the Union Budget 2016-17, 100 per cent foreign direct investment (FDI) has been allowed for ARCs which is expected to substantially improve their capital base,” said Assocham President Sunil Kannoria..“Moreover, the introduction of the Bankruptcy Code has now positioned ARCs as a very important intermediary between lenders and borrowers,” he said.