Resolution Strategies for Maximising Value of Non-Performing Assets (NPAs)

Abstract

Presence of NPAs indicates asset quality of the balance sheet of a bank/institution and hence future income generating prospects. This also requires provisioning which has implications with respect to capital adequacy. Declining capital adequacy adversely affects shareholder value and restricts the ability of the bank/institution to access the capital market for additional equity to enhance capital adequacy. Thus, if a resolution strategy for recovery of dues from NPAs is not put in place quickly and efficiently, these assets would deteriorate in value over time and little value would be realized at the end, except may be its scrap value. The literature, however, has not specifically discussed about the various resolution strategies that could be put in place for recovery from NPAs, and in particular, in which situation which strategy should be adopted. The purpose of this paper is to indicate the various considerations that one has to bear in mind before zeroing on a resolution strategy and provides a State - Resolution - Mapping (SRM) framework.