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Sarbajeet K. Sen

The ARC Committee, in its report submitted to the Government in late November, had said that the equity capital should be split between nearly 31 identified PSU banks and FIs, all of whom would be required to contribute a minimum of Rs 5 crore.

NEW DELHI, Jan. 3

IN a major reversal of plans, the Government is set to offer multilateral agencies and the private sector the lead role in setting up the country's first asset reconstruction company (ARC) by offering them a chunk of the equity in the proposed entity.

In fact, the Government is even open to the idea of handing over the entire ARC equity to private parties.

Towards this end, the Ministry of Finance is opening up dialogue with the World Bank, the International Finance Corporation (IFC) and the Asian Development Bank (ADB).

Besides these, a few private banks and FIs were also in the Finance Ministry's list of possible equity participants, highly placed officials told Business Line.

The move to invite private participation for the ARC was discussed at a high-level meeting held at the Finance Ministry on Wednesday. The meeting was attended by the members of the Finance Minister's advisory panel on economic reforms.

The move to invite private participation runs contrary to the recommendation of the Committee on ARC which had said that the proposed Rs 200-crore equity capital should be entirely contributed by public sector banks and the Government-controlled FIs.

The ARC Committee, in its report submitted to the Government in late November, had said that the equity capital should be split between nearly 31 identified PSU banks and FIs, all of whom would be required to contribute a minimum of Rs 5 crore.

Defending the move to rope in the private sector, officials pointed out that the ARC panel had not made any specific recommendation to keep out the private sector from the exercise.

``The committee did not suggest the participation of the public sector entities at the exclusion of the private sector,'' officials said.

In fact, they said that the prevalent view within the Government was that the private sector may be allowed not only to take the lead role, but also to go it alone in setting up the entity.

``We feel that private participation in the ARC would go a long way in making it an efficient tool in tackling the problem of non-performing assets (NPAs) and also in sustaining the viability of the proposed entity,'' they said.

The Government is working at a feverish pace to set up the ARC that would be given the task of taking up the bad loans of banks and FIs at a discount and make efforts to recover the same.

While the proposed entity would be within the existing legal framework, the Government is simultaneously working on drafting a Bill to provide comprehensive legislative backing to enable other ARCs to come up later.

The first ARC is likely to be constituted as early as January-end or early part of February this year. Officials said that concret plans on the structure of the ARC would be finalised in a couple of weeks.

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