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Wednesday, Apr 13, 2005

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Money & Banking - Non-Performing Assets

ARCIL bad loan buys cross Rs 15,000 crore

C.R. Sukumar

The acquisition price offered by ARCIL works out to 24 per cent of total dues.

Hyderabad , April 12

NOTWITHSTANDING the interim court orders and injunctions being obtained by the borrowers, Asset Reconstruction Company India Ltd (ARCIL) has successfully crossed the Rs 15,000-crore milestone in acquiring non-performing assets (NPAs) or dues payable by the borrowers.

ARCIL could successfully get the interim orders and injunctions set aside in most of the cases and proceed with the implementation of suitable resolution strategies to recover dues from such borrowers.

"During the 18 months of operation, ARCIL has acquired Rs 4,500 crore from 17 banks, mostly working capital lenders, and Rs 11,000 crore from six financial institutions, mostly term lenders," a senior ARCIL official told Business Line.

According to him, ARCIL's acquisition value was quite in line with the international benchmark. The data available from 1990 to 2003 shows that in the US, where there were markets for sale of NPAs, the average acquisition price of NPAs stood at 28 per cent and value realised of those NPAs was 29.6 per cent.

The NPAs in the developed economies do not include the funding of interest, he said.

As against this, the acquisition price offered by ARCIL worked out to 24 per cent of total dues. Taking the average age of NPAs into account and the fact that NPAs include significant amount of funded interest in India, value offered by ARCIL was attractive compared to the international benchmark price, he said.

Since the NPA acquisitions of ARCIL up to March 31, 2005 comprises 68 per cent operating units, investors have an opportunity to get good return from the investment made by them in ARCIL.

Of the balance NPA acquisitions, 22 per cent comprised non-operating units and 10 per cent partly operating ones.

"On the resolution front, ARCIL could settle 11 cases with the borrowers where 100 per cent settlement amount was received. In some large cases, strategic investors have shown keen interest in management/business buyouts. In four cases, restructuring schemes under Sections 391/394 of the Companies Act were filed with the High Courts. ARCIL has also taken possession of six assets in accordance with power given under the SARFAESI Act, 2002. Apart from issuing notices to 23 borrowers under the SARFAESI Act, we have realised over Rs 35 crore from a few borrowers," the official said.

However, he said the banking industry was not finding it comfortable to work with a single asset reconstruction company"The banks are of the view that multiple ARCs will help not only price benchmarking but also facilitate an early resolution process," he said.

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