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Tuesday, Mar 22, 2005

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Money & Banking - Non-Performing Assets

ARCIL buys Rs 12,000-cr NPAs for Rs 2,500 cr

Rukmani Vishwanath

Mumbai , March 21

ASSET Reconstruction Company India Ltd (ARCIL) has so far acquired in excess of 200 non-performing assets amounting to Rs 12,000 crore worth of dues payable by the borrower.

The acquisition cost of the assets to ARCIL, i.e., the security receipts issued by it amounted to Rs 2,500 crore.

"The economy is looking up and it is a good time for banks to use ARC for the purpose with which it has been set up. Much will depend on how seriously the banks take this model. The larger banks have been pro-active but some smaller ones who are carrying large non-performing assets don't have the balance sheet strength to sell", Mr Rajendra Kakker, Managing Director and CEO, ARCIL, told Business Line.

"We are doing our best to sensitise the market by addressing trade bodies and bankers. Our early successes have started and the response has been good", he said.

Asset Reconstruction Company India Ltd is the first of its kind to commence asset reconstruction business in India. It was established with the objective of acquiring non-performing assets (NPAs) from financial institutions and banks for `focused management of these assets and maximisation of recovery'.

Commenting on the ways in which theARC deals with the assets purchased, Mr Kakker said, "an NPA is like a cube of ice and the longer the time lapse in taking care of it, the more difficult it will get to salvage it".

If the asset is brought to the ARC in the initial stages, some restructuring deals can be worked out. But as time progresses and the account deteriorates, it will be brought either under the SARFESI Act or will suffer a strip sale, he said.

"We acquire an asset at sustainable debt levels. We look at what are the likely cash flows that company can sustain. If out of 100 units it can sustain 30, then we convert the remaining 70 into debt, equity or debentures, as the need may be. If the company still needs funds, private equity players come in", he said.

Similarly, the ARC will consider restructuring as an option, only if the borrower is serious and if the unit went bad because of external factors other than bad management, he added.

Commenting on the issues of payment of high stamp duty, which ranged as high as between 8 and 14 per cent in some States, making the acquisition of stressed assets unviable, Mr Kakker said, that the duty in many States such as Tamil Nadu, Madhya Pradesh and Uttar Pradesh had been brought down to nominal levels of less than one per cent.

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