Indian NPA securitisations to grow, says Fitch

India’s non-performing asset (NPA) securitisation market is set to grow from present levels, according to a report by Fitch Ratings. This will help the sub-continent’s banks to resolve over IRp600 billion ($13.5 billion) of NPAs sitting on their balance sheets.

The ratings agency studied the development of the NPA securitisation market following India’s Securitisation Act, 2002.

"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," said Sunil Subramanian, associate director in Fitch's structured finance group in Mumbai. "Furthermore, by bringing out guidelines for the buyout of NPAs by non-Arcs, the RBI has also attempted to regulate their business."

However, Fitch believes urgent reforms are still required in areas such as: the rationalisation of stamp duties; the setting up of more Arcs – the only functional Arc in India is called the Asset Reconstruction Company; the implementation of the National Company Law Tribunal, which Fitch says is necessary for the Securitisation Act to fulfil its potential; and the creation of a more robust legal system for the disposal of recovery cases.