Financial Daily from THE HINDU group of publications
Friday, Feb 08, 2002
Money & Banking
Asset reconstruction company -- World Bank opts out; ADB, IFC seek time
Sarbajeet K. Sen
NEW DELHI, Feb. 7
THE World Bank has opted out of participating in the equity of the proposed Asset Reconstruction Company (ARC) being constituted by the Government.
This leaves only the International Finance Corporation (IFC) and the Asian Development Bank (ADB) as the likely multilateral participants in the ARC equity.
Other than the multilateral institutions, the ARC equity is to be split between a clutch of private and public sector banks and financial institutions.
According to sources, the Government has proposed an initial paid-up capital of Rs 1,400 crore and an authorised capital of Rs 2,000 crore for the ARC. In view of the large equity base, the Government is keen to ensure the participation of the maximum number of institutional shareholders to cobble up the amount.
The task of the ARC would be to buy out the bad assets of banks and FIs and make efforts for their recovery while compensating the lenders at a negotiated price for the assets taken over.
The Government has been catalysing the setting up of the ARC within the existing legal framework. The Ministry of Finance is simultaneously processing a legislative Bill to provide the required legal backing to the entity in future to ensure its smooth functioning.
While seeking multilateral support for the new company, the Government had initially approached all the three agencies the World Bank, ADB and IFC to explore their willingness to take an equity stake in what would be the country's first ARC.
However, the World Bank had in a recent communication to the Ministry of Finance excused itself, stating that its charter would not allow it to pump in equity capital in such an entity.
Instead, the Bank said that it would be prepared to offer other kinds of support to the ARC including its technical expertise.
It is understood that IFC and ADB have also not yet given their firm commitment towards participating in the equity in the proposed venture and have instead sought time to study the framework that would emerge after the several rounds of meeting that the Government had held with banks and FIs.
The last meeting to discuss the structure of the ARC, held during the second week of January, was attended by the representatives of HDFC, ICICI, LIC, SBI, IDBI Bank, besides representatives of the three multilateral agencies.
At other times, the Government has discussed the issue with other public sector banks and UTI Bank.
All of them are expected to contribute towards the initial paid-up capital of the ARC.
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