Amidst an uncertain and challenging global macroeconomic environment, the Indian economy presents a picture of confidence, positivity and optimism. We have emerged from the recent spate of shocks with stronger fundamentals – inflation is easing; bank and corporate balance sheets are stronger than before; fiscal consolidation is on course and its quality has improved; and the external balances are eminently manageable with strong forex reserves. The decisive and timely monetary policy actions of the Reserve Bank of India through appropriate policy rate and liquidity measures helped India’s quick and sustained recovery.

Recent growth outturns have surprised most forecasts on the upside. After clocking real Gross Domestic Product (GDP) growth of 7.2 per cent in 2022-23, real GDP is expected to grow by 7.3 per cent during 2023-24. With strong domestic demand conditions, India remains the fastest growing major economy and is now the fifth largest economy in the world. In fact, in Purchasing Power Parity (PPP) terms, India is already the third largest economy. The International Monetary Fund (IMF) has projected that India’s contribution to world growth will rise from the current 16 per cent to 18 per cent by 2028.

The RBI’s latest assessment of the performance of the banking sector, including co-operative banks, and non-banking financial institutions points to a steady expansion in the consolidated balance sheet of the Scheduled Commercial Banks (SCBs), driven by credit to retail and services sectors. Higher net interest income and lower provisioning boosted Net Interest Margins (NIMs) and profitability. SCBs’ Gross Non-Performing Assets (GNPA) ratio fell to a multi-year low of 2.8 percent and the Net Non-Performing Assets (NNPA) ratio to 0.6 per cent at end-March, 2024.

In parallel, transactions between Banks and Asset Reconstruction Companies (ARCs) have shown significant activity, reflecting the evolving dynamics of the distressed asset market. ARCs have been instrumental in relieving banks of non-performing assets, allowing them to focus on core operations.

In F.Y. 2023-24, ARCs acquired assets worth Rs. 1.2 Lakh Crores from banks, marking a 15% increase from the previous year. The number of security receipts issued by ARCs grew by 15%, reaching Rs. 2.8 Lakh Crores, with Rs. 1.5 lakh Crores currently outstanding.

“Restructuring of loans” and “Sale of Assets” remained the primary modes for recovery for the ARCs during F.Y. 2023-24. Notably, recovery through restructuring of loan assets by ARCs saw a 43% rise year-on-year, amounting to Rs. 7,948 Crores. However, recovery through asset sales saw a 13% year-on-year decline, amounting to Rs. 7,469 Crores.

The Reserve Bank has comprehensively restructured the regulatory framework for asset reconstruction companies (ARCs) to ensure it aligns with current developments and is forward-looking. This restructuring is designed to equip ARCs with the necessary tools and readiness to take proactive measures as needed. We believe this new regulatory architecture will support ARCs in navigating the evolving financial landscape effectively.