Mumbai: Banks would need to write off their losses between 40 and 70 % 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, 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 % of gross advances in March from 5.1 % 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 % 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 % foreign direct investment (FDI) has been allowed for ARCs which is expected to substantially improve their capital base,” said Assocham President Sunil Kannoria.