Relevance of Sustainability Assurance Engagements in Current Context – Globally as well as in India 

Regulatory requirements: A separate set of performance parameters, BRSR Core, which are mentioned in Annexure 1, vide a consultation paper had been released by SEBI in March 2023, vide regulation # 34 (2) (f) LODR. Further, SEBI’s circular, dated the 12th of July 2023, calls for assurance of the reported BRSR Core by the top 1000 listed companies in phases, as well as reporting and assurance of the BRSR Core by the value chain for the top 250 listed companies, on a comply-or-explain basis.  

Investors Requirements: Various B2B investors are seeking third party assurance of the ESG performance disclosed by the companies prior to taking investment related decisions.  

ESG Rating Agencies: Various ESG Rating frameworks have questions that seek assurance for different kind of ESG performances that have been disclosed by companies. Additional marks are provided if the disclosures are third party endorsed. This in turn, facilitates companies to improve their ESG score and attract better investment and or better business match making.  

Investment in Green Funds: Various green based financial instruments are seeking assurance of the ESG performance of their companies/impacts of their projects, prior to seeking approvals as green fund before investment in the market. 

Demonstration of Transparency & Credibility for the Information Reported: Various stakeholders, primarily the shareholders, regulatory authorities, local communities, customers, are seeking an external assurance of the company’s ESG performance and long-term sustenance.  

Requirement by companies based abroad: The companies in the value chain of UK, EU, US, etc. based companies are gradually seeking independent assurance against various requirements emerging out of their local ESG norms.

The post Decoding the Business Responsibility first appeared on Nangia & Co LLP.

India’s regulatory framework to deal with Stressed Assets has matured over more than three decades, beginning with the Sick Industrial Companies (Special Provisions) Act, 1985. Since then, the three major objectives of each new regulatory scheme have remained the same – early detection of corporate sickness, speedy resolution/revival, or if that is not possible, speedy liquidation. The most revolutionary regulatory development came in the form of the IBC in 2016, which made several big changes in several statutes and sweeping changes in the way corporate insolvencies were resolved or liquidated. The biggest change wrought is that the Board of the defaulting company is superseded by a ‘Resolution Professional’ with the company’s creditors calling the shots, thus eliminating a huge conflict of interest. In 2019, the RBI announced the Prudential Framework for Resolution of Stressed Assets that applied to Banks and NBFCs, with the key focus being early detection of potential loan defaults and their resolution. These reforms, along with the growth of specialized financial intermediaries like ARCs and AIFs, have made it increasingly feasible for sophisticated investors to bring in resources for reconstruction, and take the trouble of recovering dues from NPAs off the banks’ hands. This has given rise to a new investment class – Stressed Assets. Stressed Assets as an investment class are set to take off and are a rich source of ‘value buy’ investment opportunities for foreign FIs looking to invest in India.

In this publication, Nangia Andersen takes a bird’s eye-view of the Stressed Assets market and zooms in on the profit potential for foreign investors in stressed assets. We take a balanced view of the opportunities open to foreign FIs for potentially high-profit investments in India, and also list the further reforms desirable in the coming months and years to attract big-ticket investments in Stressed Assets. Our team at Nangia Andersen would endeavour to advise and handhold different stake holders at various stages of the entire process and provide holistic solutions keeping in mind the Indian regulatory environment and commercial aspects of the transaction.

Introduction to Stressed Assets 

Deterioration of asset quality has emerged as a big economic risk for the Indian banking sector in the post-COVID-19 times, leading to increased attention to ‘stressed assets’. Stressed assets present opportunities for investors to purchase operational and good quality underlying assets at attractive valuations with turnaround potential. They can enable strategic investors to expand capacity in a cost- effective manner. From a banker’s perspective, “stressed assets/loans” mean loan exposures that are classified as NPAs or SMAs. SMAs have been categorized by the Prudential Framework for Resolution of Stressed Assets issued by the RBI vide circular dated June 7, 20191, and further clarified vide circular dated November 12, 20212, requiring lenders to classify the accounts immediately on default of principal or interest or any other amount wholly or partly overdue or, in case of revolving credit facilities, the outstanding balance remains continuously in excess of the sanctioned amounts or drawing power, whichever is lower. SMAs are further classified as SMA-0, SMA-1 and SMA-2 based on the no. of days of default. A loan whose interest and/ or installment of principal have remained ‘overdue ‘ (not paid) for a period of 90 days or more is considered as an NPA.

The post Distressed Funds and NPAs – Indian Landscape  first appeared on Nangia & Co LLP.