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India moves ahead with securitisation of its' NPA: Fitch

Written by: Staff
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New Delhi, Mar 2 (UNI) Fitch, the global credit rating agency, today said it expects the non-performing asset (NPA) securitisation market in India to grow from present levels and this would further help the banks resolve their NPAs at a much faster pace than conventional methods.

In a special report published today, the agency said it took stock of the developments in the field of non-performing asset securitisation and resolution since the Securitisation Act was passed in India in 2002, and sought to gauge the impact of this law on the balance sheets and NPAs of the country's banks.

''Over the three years since the enactment of the Securitisation Act, an appreciable amount of progress has been made in the sale of NPAs by banks and also in terms of resolution of NPAs by the Asset Reconstruction Company (India) Ld, the only functional asset reconstruction company in India,'' Amit Tandon, Managing Director of Fitch Ratings India said a state ment.

''The Reserve Bank of India (RBI) has encouraged investment in the sector by permitting foreign direct investors to buy equities of asset reconstruction companies (ARCs) and allowing foreign institutional investors to invest in security receipts. Furthermore, by bringing out guidelines for the buyout of NPAs by non-ARCs, the RBI has also attempted to regulate their business,'' added Sunil Subramanian, Associate Director in Fitch's structured finance group.

However Fitch points out, urgent attention is required on issues such as rationalisation of stamp duties, setting up of more ARCs, immediate setting up of the National Company Law Tribunal, and also at a macro level, to evolve a more robust legal system for disposal of recovery cases so that a meaningful result can be achieved out of the process of resolution which has been set in motion.

''With over Rs 600 billion of NPAs still within the banking system, the business of NPA securitisation is here to stay and once the cycle sets in, the same would tend to continue since banks with lesser NPAs on their books would have more liquidity to lend aggressively,'' Mr Tandon added.

''This would in turn, generate a certain amount of defaults, the same adding to the pool available for NPA securitisation,'' he pointed out.

UNI ARB SD PM1828

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