Economic Survey calls for improved liquidity to boost NPA price discovery
insolvency ecosystem, which has helped bring NPAs to multi year low.
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“The prerequisites for an efficient market for the NPAs are that it should be deep, competitive and have adequate liquidity,” the survey said. “The market has to have enough investors to ensure that the price discovery of the NPAs is efficient. It has to have adequate liquidity to support acquisition from the banks and support asset’s turn-around.”
In FY23, 28 Asset Reconstruction Companies (ARCs) operated, acquiring NPAs through security receipts (SRs). ARCs must take at least 15% of SRs issued or 2.5% of the total, whichever is higher. Regulatory changes now allow ARCs to be resolution applicants under the Insolvency and Bankruptcy Code (IBC), enhancing asset recovery. As a result of several measures, 9.7% of Scheduled Commercial Banks’ (SCBs) Gross NPAs was sold to ARCs in FY23, up from 3.2% in FY22, with increased SR redemptions.
The Securities and Exchange Board of India (SEBI) has taken steps to improve liquidity in the distressed asset market. Foreign Portfolio Investors (FPIs) can now invest in debt instruments of companies under resolution and SRs issued by ARCs, with no minimum investor limit or residual maturity requirement. This boosted FPI investment in SRs from Rs 10,000 crore in FY2021 to Rs 19,383 crore in FY23. SEBI also introduced the Special
