1.

Do you think the volume and value of stressed deals will rise in FY23. If yes, by what
percentage on a yearly basis?
For next fiscal year, the India Ratings and Research (Ind-Ra) expects-
1. Credit growth to pick up to 10 per cent, Gross non-performing asset (GNPA) ratio at
6.1 per cent as the key financial metrics are likely to continue to show improvement in
FY23, backed by strengthened balance sheets and an improving credit demand
outlook with an expected commencement of the corporate capex cycle.

2. Leverage to start building up in 2022-23 on account of a revival in capex, increased

working capital demand due to a higher output, higher exports and commodity
inflation.

3. The stressed asset ratio (GNPA + restructured) in the retail asset segment is expected
to almost double to 5.7 per cent at end-FY22 from 2.9 per cent at end-FY21, whereas
for the MSME segment, it could increase to 15.8 per cent from 11.7 per cent.
4. The agency said the corporate segment's stressed assets would slightly drop in the
ongoing fiscal year to 10.4 per cent from 10.8 per cent in 2020-21 on account of
recoveries from a couple of large accounts and ongoing recoveries and upgrades in
other smaller corporate accounts
5. For 2022-23, the agency expects stressed assets in retail to decline to 4.9 per cent on
account of recoveries. In case of MSMEs, bad assets may increase to 16.7 per cent,
and fall to 10.3 per cent in corporate segment on account of a continuing trend of
recoveries
6. The rating agency expects an increase of 180-250 basis points (bps) in GNPAs in the
real estate segment in FY2022. However, players with a diversified credit book across
asset classes are likely to witness a relatively lower increase in NPAs.
7. The agency said the real estate oriented non-banks have witnessed an improvement in
their capitalisation profiles since March 2018 driven by the moderation in the AUM
growth coupled with sizable capital raise in a bid to strengthen their balance sheets.
8. The capital cushion for real estate oriented non-banks is estimated to have increased
by 4 per cent from March 2019 to March 2021. The current capitalisation level also
provides the ability to absorb losses.
9. The agency expects the earnings profile to contract marginally in the current fiscal
and stabilise in FY2023 unless there are further pandemic-induced business
restrictions. The ability of non-banks to keep the credit costs under control would
remain critical, it said.

2.
What are some of the big tickets stressed assets deals that ARCs and lenders are keen on
executing in next fiscal?
 Asset reconstruction companies (ARCs) are eyeing stressed retail and small business.
  ARCs can focus on acquiring and recovering small-ticket bad loans with the help of
technology following the creation of the National Asset Reconstruction Company Ltd
(NARCL).
 Lenders have decided to initially transfer 22 bad loan accounts totalling ₹89,000 crore
to the proposed NARCL, aiding the clean-up of their balance sheets. The aggregate
amount of bad loans likely to be transferred in tranches will be ₹2 trillion.
 ARCs are now tying up with investors to acquire assets in 100% cash deals from
banks.
 National Asset Reconstruction Company — India’s bad bank — will make binding
offers in 14 cases to lenders to buy out big-ticket stressed assets before the end of
March. Only four/five cases may see transfer before the end of 2021-22 (FY22), 

3.
What is the part that fintechs will play in such stressed asset deals?
As per founder of Technology can help manage the challenges posed by the mountain of
Non-Performing Assets (NPAs) in the Indian banking sector-
 Blockchain for Transparency- Blockchain technology can significantly help in
improving transparency between market participants. It helps all the participants to
have access in real-time. A key advantage of blockchain in banking is that it improves
efficiency and enhances security, quick transaction time, and there is no third-party
involvement
 Artificial Intelligence for Streamlined Processes- Artificial Intelligence (AI) too
can play a critical role in fraud detection in the banking industry. AI can also help in
online dispute resolution and less dependence on human intervention. With
conversational AI based solutions, the banking process has become much faster, and
engagement with customers is streamlined
 Emerging Tech for High Tech Banking- The banking industry is moving from its
traditional methods of securities to high-tech securities. They have started
experimenting with new-age technologies. Technologies such as Machine Learning,
AI, data sciences, and others can help in this direction through early identification of
defaults, and also in creating a robust and efficient strategy for collections from
defaulters
 Biometrics for Authentication- Biometrics is another banking champion. Aadhar
authentication has already made customer databases more secure. Digital technology
lessens the burden of carrying important documents, so now customers are only using
their Aadhar biometric authentication to access their key banking services. Banks are
working with their technology partners to implement these new-age technologies for
non-intrusive yet effective methods of interaction with delinquent customers. The
attempt is not merely to bring down the NPAs but also to improve customer
experience,
 Composite Credit Scoring -Most FinTech companies have complemented the
standard credit rating scores with their own credit rating system modelled on
 consumer behaviour, non-traditional markers of credit worthiness and other indices,
all modelled and analysed with complex algorithms.

REFERENCES
1. https://economictimes.indiatimes.com/industry/banking/finance/banking/banking-sector-
outlook-revised-to-improving-for-fy23-credit-growth-seen-at-10-pc-ind-ra/articleshow/
89637594.cms?from=mdr
2. https://www.livemint.com/economy/arcs-are-eyeing-retail-small-ticket-bad-loans-
11625849313726.html
3. https://thetechpanda.com/the-fintech-way-of-solving-indias-high-npa-situation/34589/
4. https://economictimes.indiatimes.com/industry/banking/finance/banking/banking-sector-
outlook-revised-to-improving-for-fy23-credit-growth-seen-at-10-pc-ind-ra/articleshow/
89637594.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst