Valuation for Non Performing assets (NPAs) is an integral component of the financial ecosystem, especially given the rising incidence of NPAs in today's uncertain economic environment. Nonperforming loans or advances can pose considerable difficulties to financial institutions and businesses, potentially leading to severe liquidity issues and economic instability.

In 2016, the introduction of the Insolvency and Bankruptcy Code (IBC) marked a pivotal moment in meeting these challenges by providing a structured, transparent mechanism for insolvency resolution and asset liquidation. Yet, for this strategy to succeed effectively, accurate valuation methods must also be in place.

Professional valuers play a pivotal role in this ecosystem, bringing expertise in assessing the financial health of assets, estimating their market value, and projecting future cash flows. Their analyses help make informed decisions about restructuring the debt, selling off the assets, or liquidating the entity.

Addressing the challenges posed by NPAs requires a strategic approach to valuation underpinned by robust methodologies and expert insights. This supports the objectives of the IBC and contributes to the broader goal of financial stability and economic growth. Here, we will get more details on the Valuation for NPA and why you should choose R.K. Associates for the Valuation of NPA services. 

What is a Non Performing Asset (NPA)?

A Non Performing Asset (NPA) is a classification for loans or advances in default or arrears. A loan is in arrears when principal or interest payments are late or missed. A loan defaults when the lender considers the loan agreement broken and the debtor cannot 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 more than 90 days, the interest or instalment amount is overdue, then that loan account can be termed a nonperforming asset.

According to the Reserve Bank of India (RBI), the gross nonperforming 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 Assets (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 valuation for NPA is accurately estimating its recovery value, which is the amount that can be recovered from selling these assets.

To begin the valuation process, gathering 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, is important.

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, market comparables, and liquidation value analyses.

It is important to note that valuing NPAs is not an exact science and involves a certain level of judgment and estimation. Working with experienced professionals who deeply understand the valuation process and can provide accurate and reliable valuations is crucial.

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). 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 exchanged between a willing buyer and willing seller on an arm's length basis, as on the insolvency commencement date. Liquidation Value is the estimated realizable Value of the corporate debtor's assets if the debtor were to be liquidated on the insolvency commencement date".

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

Importance of Valuation for NPA 

Valuation of non-performing assets (NPAs) is essential for various reasons, particularly in the context of financial institutions, investors, and regulatory bodies. 

Here are the key points highlighting its importance:

1. Accurate Financial Reporting

   • Valuation of NPAs ensures that financial statements accurately reflect the true economic condition of the institution. This is essential for maintaining transparency and credibility with stakeholders.

2. Regulatory Compliance

   • Financial institutions must adhere to regulatory guidelines regarding the classification and valuation of NPAs. Proper valuation helps meet these regulatory requirements and avoid penalties.

3. Risk Management

   • By accurately valuing NPAs, financial institutions can better understand their risk exposure. This helps formulate strategies to mitigate risks and strengthen the institution's financial health.

4. Capital Adequacy

   • Accurate valuation of NPAs is crucial for determining banks' capital adequacy ratio. It ensures that banks maintain sufficient capital to cover potential losses, which is vital for their stability and solvency.

5. Investor Confidence

   • Transparent and accurate valuation of NPAs builds confidence among investors. It assures them that the institution is managing its assets prudently, which can attract investment and support its growth.

6. Loan Recovery and Restructuring

   • Proper valuation of NPAs aids in devising effective recovery and restructuring plans. It helps assess the feasibility of recovering the outstanding amount and make informed decisions about restructuring the loan terms.

7. Asset Quality Monitoring

   • Regular valuation of NPAs allows financial institutions to monitor the quality of their loan portfolio. This helps identify trends and take proactive measures to prevent the escalation of non-performing loans.

8. Market Valuation and Pricing

   • Accurate valuation provides a fair market price for investors purchasing distressed assets. This facilitates the buying and selling of NPAs, contributing to the efficiency of the secondary market for distressed assets.

9. Strategic Decision Making

   • Management can make informed strategic decisions regarding lending policies, provisioning, and resource allocation based on the valuation of NPAs. This ensures that the institution's strategies are aligned with its financial realities.

10. Impact on Credit Ratings

    • Credit rating agencies assess the quality of assets held by financial institutions. The accurate valuation of NPAs can influence the institution's credit rating, affecting its ability to raise capital and borrow funds at favourable rates.

In short, the valuation of non-performing assets is crucial in maintaining financial stability, regulatory compliance, and investor confidence while aiding financial institutions' risk management and strategic decision-making.

Understanding the Liquidation Valuation

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

How will R.K. Associates help you evaluate Non Performing Assets(NPA)?

We deliver precise and reliable Valuation for Non Performing Assets (NPAs). Our team of expert valuers in Noida combines deep industry knowledge with advanced analytical tools to ensure you receive accurate, timely, and compliant valuations with the latest regulatory standards.

Here's why you should partner with us:

1. Expertise and Experience: With years of experience in asset valuation, our professionals understand the nuances of NPAs, ensuring that your assets are valued accurately to help you make informed decisions.

2. Comprehensive Service: From residential and commercial properties to industrial assets, our wide range of services covers all aspects of NPA valuation, providing you with a one-stop solution.

3. Regulatory Compliance: We stay updated with the latest regulations and guidelines, ensuring that all valuations are compliant minimizing your risk of regulatory issues.

4. Timely Delivery: We understand the importance of deadlines in asset management. Our streamlined processes and dedicated team ensure that you receive your valuation reports on time, every time.

5. Personalized Approach: At R.K. Associates, we believe in understanding your unique needs. Our tailored approach ensures that you receive solutions that best fit your requirements.

Take the Next Step 

Ready to get started with a valuation that adds value to your business? Contact R.K. Associates, one of the best values in India, which also offers the best valuation services in India today, to schedule a consultation. Let us help you navigate the complexities of nonperforming asset valuation with expertise and ease.

Call us at (0120) 4110117, 4324647, +91-9958632707) or email us at valuers@rkassociates.org  to discuss your needs. 

Discover how R.K. Associates can assist you in maximizing the Value of your nonperforming assets!