Setting up an online trading platform will help India achieve a thriving market for sale of NPAs (non-performing assets), said Acharya at an ASSOCHAM event held in Mumbai today.
As of now, the price that ARCs bid for the stressed loans and the bid that is funally accepted by the bank is not made public. If these are disclosed, it could bring transparency, lead to informed decision for future sales of stressed assets and also bring more vibrancy in the distressed asset market.
He said that Indian Banks’ Association (IBA), Association of Asset Reconstruction Companies and credit rating agencies can come together to set up such a platforn which could be equivalent of Loan Syndication and Trading Association (LSTA) in the United States, Acharya said while inaugurating an ‘ASSOCHAM Arcon 2018 – ARCs: Emerging avatar in new distressed landscape.’
The RBI deputy governor said such a platforn could enable three things-disclosure on credit events, digitisation of loans and legal documents and standardisation along the way.
He indicated that it is in the interest of banks to create primary market liquidity in selling loans and in the interest of ARCs that a secondary markets for these assets is developed.
Acharya said that loan sales could occur for risk transfers perhaps even prior to default because recovery adds stress for players who want to come in even before an Insolvency and Bankruptcy Code filing takes place.
“So now you don’t have to have a measure of recovery only at the outcome of IBC, you could have measure of recovery even at stress because that will get reflected in the loan sales,” said the RBI deputy governor.
“I think if that is the point at which the banks are going to be selling loans, then would be the relevant figure for calculating expected credit losses and so on,” he added.