Wednesday, September 30, 2020
Time: 3:30 to 4:30 pm (15:30 IST).
Dr. Rohit Prasad, Professor of Economics at Management Development Institute (MDI) and
Mr. Yogesh B. Mathur, Chartered Accountant
Chaired by Prof. Alok Sheel, RBI Chair Professor, ICRIER.
In this paper we build a theoretical model to analyze the gains to trade in the transaction between banks and Asset Reconstruction Companies in the secondary market for NPAs. In particular we focus on three critical variables – the overall value of the deal, the proportion of cash and security receipts used in the transaction; and the relative returns of the default bankruptcy process and the distressed debt market ( which in turn depends on the capital infused in the distressed debt market).
We show that the insights generated from the unit economics can be used to understand trends in the overall market, as well as outcomes of individual transactions. The unit economics are also used to examine the efficacy of the Swiss Challenge auction format currently in use to sell the assets. Finally, we draw inferences for changes required for the market for stressed assets as a whole, not restricted to NPAs alone.