Indian Banks’ Association To Set Up Online Trading Platform To Sell Off Bad Loans

In an attempt to improve price discovery and market liquidity, the Indian Banks’ Association (IBA) is looking at the possibility of an online trading platform to sell bad loans.

In a recent report, Media Company LiveMint quoted V.G. Kannan, Chief Executive of IBA, as saying, “We will prepare a discussion paper as well as consult with all stakeholders including asset reconstruction companies (ARCs) and banks.”

But there have been no concrete discussions on the matter, yet.

The report further quoted industry experts as saying that the online platform can also be used as a Live bidding platform. The idea was first shared on January 20, 2017 by Viral Acharya, Deputy Governor of the Reserve Bank of India.

At an event on distressed assets, Acharya urged banks and ARCs to team up and set up an online trading platform for selling off bad loans as it would help develop such a market.

Reportedly, Rating agency ICRA has also started exploring the avenues to facilitate this platform.

Naresh Takkar, Managing Director, and Group Chief Executive Officer stated, “For various stressed assets or potentially stressed assets, we are looking at including recovery prospects as well. So far, the ratings only specify the chances of default rather than what happens after default. We are looking to do some work on recovery ratings.”

It is to be noted that the Indian banks have a stressed asset pool of $157.3 Bn (INR 10 Tn).

According to a recent survey by Federation of Indian Chambers of Commerce & Industry (FICCI) and Indian Banks’ Association (IBA), 58% of the respondent banks reported a rise in non performing assets (NPAs), significantly lower than 80% reporting so in the previous round of the survey indicating possible stability in credit environment.

Infrastructure, metals, and engineering goods were the key sectors reported with the highest NPAs. However, only 28% banks reported a rise in the number of requests for a restructuring of loans as compared to 40% in the previous round.

On the views and suggestions, asked in the survey, for improving the ease of doing business ranking with respect to credit, Banks suggested various measures. This included

• Setting up of single window regulatory/statutory approvals for a fresh venture/ exposure,
• Strengthening up of online loan applications platform
• Speedy credit underwriting process,
• Introduction of Legal Entity Identifier (LEI) code to improve the quality and accuracy of financial data systems for better risk management.

The Indian digital startup ecosystem is also not aloof from the happenings in the banking sector and has introduced measures to support a better functioning of various departments. For instance, there is Mumbai-based stressed receivables management firm Moneytor, which looks to automate and digitise all the processes related to debt collection, post a consumer or organisation defaulting on their loans.

Another such startup, IndiaLends provides big data analytics, credit risk assessment, automated workflows to help customers improve their financial products and services such as personal loan, credit cards, unsecured loans, installment loans i.e. debt management.

Also, there is InnoVen Capital, an early entrant in catering to debt financing space, which offers multiple debt capital solutions, including venture debt, acquisition finance, growth loans and syndication amongst the brigade of other tech startups.

With the discussions on setting up an online platform for selling bad loans by organisations like IBA, ASSOCHAM etc, it will be seen if Indian tech startups can lead the helm of the platform for the government bodies.