What Is a Non Performing Asset (NPA)?

A Non Performing Asset (NPA) refers to a classification for loans or advances that are in default or in arrears. A loan is in arrears when principal or interest payments are late or missed. A loan is in default when the lender considers the loan agreement to be broken and the debtor is unable to meet his obligations.

• Money or assets provided by banks to companies as loans sometimes remain unpaid by borrowers. This late or non-payment of loans is defined as Non Performing Assets (NPA). They are also termed bad assets.

• In India, the RBI monitors the entire banking system and, as defined by the country’s central bank, if for a period of more than 90 days, the interest or installment amount is overdue then that loan account can be termed a Non-Performing Asset.

According to the Reserve Bank of India (RBI), the gross non performing assets in Indian banks, specifically in public sector banks, are valued at around Rs 400,000 crore (~US$61.5 billion), which represents 90% of the total NPA in India, with private sector banks accounting for the remainder.

Valuation for Non Performing Asset (NPA)

Valuation for Non Performing Assets (NPAs) is a complex process that involves a deep understanding of the financial and economic factors that affect the value of these assets. The main challenge in valuing NPAs is to accurately estimate their recovery value, which is the amount that can be recovered from the sale of these assets.

To begin the valuation process, it is important to first gather all the relevant information about the NPA, including the type of asset, the nature of the default, the borrower's financial position, and the market conditions.

Next, a thorough analysis of the asset's financial statements and cash flows should be conducted, along with a review of the borrower's credit history and any legal or regulatory issues that may impact the asset's value.

Once all the relevant information has been gathered and analyzed, several valuation methods can be used to estimate the recovery value of the NPA. These may include discounted cash flow analysis, market comparable analysis, and liquidation value analysis.

It is important to note that valuing NPAs is not an exact science and involves a certain level of judgment and estimation. As such, it is crucial to work with experienced professionals who have a deep understanding of the valuation process and can provide accurate and reliable valuations.

Recent Developments and Ways to Tackle NPA  :

• Insolvency and Bankruptcy Code (IBC)

• Credit Risk Management

• Tightening Credit Monitoring 

• Amendments to Banking Law to give RBI more power

• Stricter NPA recovery

• Corporate Governance Issues

• Accountability 

Obtaining professional Valuation of assets or Valuation of Securities or Financial Assets of an entity is quintessential for taking “informed decision-making” for any acquisitions under the Insolvency and Bankruptcy Code (IBC). As per the Companies (Registered Valuers and Valuation) Rules, 2017, every valuation under the IBC is to be conducted by a Valuer registered with the IBBI.

IBC classifies valuation as “Fair value” or “Liquidation Value”. Fair Value is the estimated realizable value of the assets if the same were to be exchanged between a willing buyer and willing seller on an arm’s length basis, as on the insolvency commencement date. Whereas, Liquidation Value is the estimated realizable value of the assets of the corporate debtor if the corporate debtor were to be liquidated on the insolvency commencement date”.

Transique Valuation Advisors is a sector-agnostic, Valuation firm and holds leadership positions in the Valuation of Securities or Financial Assets with extensive experience in the valuation of assets under IBC. We get the valuation of Real estate and Plant & machinery (through our affiliated entity which is an experienced and renowned valuer in these asset categories).

Definition of Liquidation Valuation

Liquidation valuation is the value of a company that is bankrupt or going out of business. It is the value of the company’s assets, according to what they would be worth if they are sold off in order to repay creditors. This is in contrast to the going concern value, which assumes the company will continue to operate for the foreseeable future. The difference between going-concern value and liquidation value consists of intangible assets and goodwill.

How will RK Associates help you in the valuation of Non Performing Assets(NPA)?

R.K Associates have a good & rich experience in providing Valuation Services In India of Non Performing Assets (NPA) to a wide range of infrastructure sectors. 

We have the capacity and experience to value these infrastructure and specialized assets. We have valuations teams for Valuing the Non performing Assets for any industry and also Technical experts from several Industries to judge the Assets at ground level. We also give valuable suggestions or ways by which an industry can tackle these Non performing Assets (NPA).