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Benefits of non-performing asset (NPA)

Posted Date: 16-09-2021 Posted By: user

NPA securitization rebooting has many opportunities and advantages. We know that NPA is caused because of a short-term crunch of cash flow. If you can commit a sizeable quantity of funds, then NPA can become a quality asset.

What are the benefits of asset securitization? Well, they are many hidden advantages. Let’s understand them one by one.

Some benefits of NPA securitization

  • The first benefit is that the financing costs are low. When someone disposes of NPAs, it needs a large cash flow. When someone manages the same, it needs big costs.
  • It is a fact, that restart of NPA securitization brings new opportunities for enterprises and the market. It elevates the capacity of an entrepreneur to defend against risks. It allows multiple types of NPAs to come under one pool of assets to achieve risk hedging. By measures such as centralized disposal and separation of NPAs by the capital market, you can directly reduce the percentage of non-performing assets.
  • NPA securitization reduces the NPA of an enterprise. In the era of economic turmoil and a weak economy, the rapid disposal of NPA within a short timeframe. When the economy is in the flourishing mode, NPA projects can achieve relatively high results only in these circumstances. However, there is an equal risk of management and disposal if the assets are held longer.
  • By securitization of NPA, one can quickly sell the NPA and use the sale proceeds in many ways. He can develop a new project, invest in some new venture, increase liquidity, or alter the business structure.
  • NPA securitization increases capital sources. For an enterprise, it is a new means of financing. It breaks the over-dependence on bank borrowing and expands the revenue resources. When an organization securitizes NPA, it revitalizes existing funds. There is no increase in liabilities, and it secures a low-cost fund resource.
  • NPA securitization increases the number of return rate tiers and credit ranking. It further expands the scale of the asset securitization market.

When the stock market is volatile and puts relatively large market risk, non-performing loan securitization can bring new investment products. It opens new investment channels and broadens the choices of products.

Such products can satisfy the risk appetite of investors and ever-diversifying investment needs. The use costs are low, usually lower than bank loans.

Thus, we cannot say that NPA is always a curse for the business. There could be unique benefits of it.