The Infection on the Distressed Debt Market during the Pandemic

The Infection on the Distressed Debt Market during the Pandemic

The monetary management and exchange process will not be easy for the asset reconstruction companies, as the Kamath Committee on loan recommendations created a huge effect for the investors in the debt market for $260 billion in a diminishing manner.

As the plan became a failure, the investors and bankers are trying to reverse their investments which makes it effective for the market to restructure itself for the next 6 months.

The investors who are all associated with the distressed asset sale stated that the calculated target estimation of assets worth Rs.60,000-65,000 crores in the Financial Year 2020 was nowhere to be seen as achieved in the current year. The sales were very low in the fiscal year of 2020.

According to the Managing Director of JM Financial Group who also owns an asset reconstruction company, the existing assets will not be subjected to the Non-Performing category. This stage of slowdown will be monitored for at least 12 months. There will be a stagnation in the moving of the assets and most likely the sellers won’t like their assets to be under the NPA classification. To rectify the prevailing conflict, there will be a coordinated work effort with the banks.

The distressed assets were remodified after the impact of the global financial crisis. The prospectus of Asset Reconstruction Company started its function in the market as some of the assets couldn’t withstand in the market after the crisis.

Rajesh Gupta, the Managing Partner at SNG & Partners, on the other hand, replied that the current pandemic crisis in the economy has created a low level of activity in the distressed asset market for some months. Even though the businesses are already diminished way before the pandemic and were suppressed in the COVID situation, the investors have a bagful of opportunities after the reconstruction of the business and market. There will be a strong force in the foreign market for the investors and the valuations of the stocks will be straight and fair.

As per the Director of UV ARC Ltd., Hari Hara Mishra, there is a stagnation stage in the distressed debt market after the impact of the COVID attack. Assets which doesn’t come under the COVID framework and other non-eligible assets will be directed to the distressed debt market by December 31st of the year as per the invocation of resolution under the COVID framework. The classification of NPA assets in the books of the bank accounts will have pressure on the overall balance sheet of the banks and also other ways of recovery will take a long time.

In the current financial year, there will be an increase in the Non-performing assets to loan book ratio for about 50%, as per the statistics of the S&P Global Ratings.

As per the report of the Indian Ratings, the restructuring process is always a rocket science very difficult to achieve. In the Financial Year 2015, the restricted assets were at a peak of 6% most of which fell under the category of Non-Performing Assets.

A well-structured plan with a definite period to reconstruct will help the assets to get moved without disrupting the economy. The troubles will increase if there is no such planning concept. The long-run is likely to affect the ARC Industry and also will skyrocket in the number of Non-Performing Assets in the upcoming years.