The proposed asset reconstruction company (ARC) may be positioned as a buyer of last resort with the banks and the government leaving the operations to a professional management.
While the blueprint for the ARC is being prepared by a committee headed by Punjab National Bank chairman Sunil Mehta, sources said the idea is to put in place a large ARC, which will step in to offer a better value to lenders, who are caught with an asset where it is tough to realise value and using the Insolvency and Bankruptcy Code (IBC) may not be the best option.
“It is not as if all the assets will go to the ARC. It will step in if it’s a viable option and banks realise better value. At the same time, it will ensure that there is value left in the asset to nurse it back to health or sell it and make money,” a source told TOI.
The view is that a large ARC is needed to help nurse some of the non-performing assets back to health. While capital is a major challenge for the proposed company, one option is to tap the National Infrastructure Investment Fund, a plan that had not passed muster with the government earlier. Earlier this week, Piyush Goyal, who is officiating as the finance minister, had said that the government will look at the proposal once it is submitted by the committee.
Currently, there are 24 ARCs, which are registered with the RBI. At the end of March, they collectively managed stressed asset of around Rs 95,000 crore. Although banks had set up the Asset Reconstruction Corporation of India (ARCIL) around 15 years ago, the company is only the third largest player with Edelweiss being the largest player, followed by JM Financial. Edelweiss was managing assets of over Rs 43,500 crore, which was 46% of the market.
The rise in bad loan has generated massive interest from foreign players, including the likes of KKR and Blackstone.
“Around two dozen ARCs are already there and some large funds also coming. They are coming thinking there is good business available in the country. If any new ARC comes the government and the regulator have to ensure that there is transparent pricing and level-playing field,” said the CEO of a leading ARC.