Mumbai, July 07: The new legal provisions regarding foreclosure enunciated in the securitisation act will have a "limited impact" on existing Non-Performing Loans (NPLs) in the Indian banking system and the actual recoveries will be in the region of 12 per cent, according to CRISIL. "This is due to a combination of factors such as the exemptions provided by the act, the impediments to the banks' ability to enforce security and the actual recovery rates for these assets," CRISIL said in a release here today.

The act would be instrumental for facilitating recovery from about 31 per cent of the outstanding gross NPLs. The actual recovery rate against those assets on which action could be taken would be about 40 per cent, it said.


"The efficacy of the new foreclosure laws can be enhanced by bringing more Non-Performing Assets (NPAs) within its ambit", the release said.
Bringing loans below Rs one lakh within the ambit of the act and allowing enforcement of agricultural land, where it is a collateral, would help in efforts to recovery of impaired assets.

CRISIL said the Indian banking system has a low provisioning cover of about 49 per cent and, therefore, many banks would be reluctant to sell NPLs because losses arising from the resolution of these cases would need to be booked immediately with a consequent impact on profitability.
Bureau Report